She Might Have Become The Governor

Official Secretary of State Photo Portrait of Shemia Fagan

A couple months ago I was dating this woman who noticed that I follow state and local politics closer than she did. When the Portland city council held its elections, she asked me, “Why don’t you run for city council?” My answer was, “I thought you liked me.”

Maybe where you live, politicians in general are unpopular but people like their own individual representatives. Or maybe your jurisdiction is like Oregon, where the most hated person in the state is always the Governor. The second-most hated person in Oregon is the Mayor of Portland. The next-most hated people in Oregon are the five city council commissioners of Portland. Further down the list from that, opinions vary. Thus, my reaction to the suggestion that I go well out of my way to step up to take a pay cut and make myself immediately unpopular throughout the city, gluten-eschewing interest group by group.

Now, if that’s not enough of a disincentive to enter public service, consider the following story. A story that will involve little, if any, obvious violations of law, beyond one business not paying its taxes and other money owed to the state government. And it’s a story with a very sad ending.

I

Oregon has no Lieutenant Governor. If the Governor becomes unable to serve, the independently-elected Secretary of State assumes the Acting Governorship. This happened most recently in 2015 when John Kitzhaber resigned after his and his girlfriend’s corruption (which was chronicled on these pages as early as 2014) became too much to be tolerated. Then-Secretary of State Kate Brown took over; in 2019, Brown won election to the Governorship in her own right. She was termed out in 2022, to be succeeded by then-Speaker of the State House Tina Kotek. The Secretary of State, Treasurer, and Attorney General are all independently elected, with their election cycles staggered to occur in Presidential election years. So obviously, the Secretary of State is naturally someone considered when it comes time for Oregon to pick a new Governor.

Within the executive branch is the Oregon Liquor and Cannabis Commission, or OLCC. This consists of a seven-member oversight board appointed by the Governor, to whom report an Executive Director who really runs the place, and a multi-tiered level of civil service employees. Every bottle of booze legally sold in Oregon goes through a single warehouse at OLCC’s headquarters in Milwaukie (a suburb of Portland). In February, the Executive Director resigned after six of the executive-level employees of OLCC were found by enterprising local reporters to have diverted expensive and rare liquors (e.g., Pappy Van Winkle whiskey) to themselves, leaving none to be sold to the open-to-the-public liquor stores. The executives claimed that they drank these liquors themselves or gave them away as gifts, and deny re-selling them (Pappy Van Winkle prices out on the secondary market above a thousand dollars a bottle).¹ You may notice, as you read through this essay, that “stinky but not illegal” turns out to be something of a theme here.

They’re being investigated by the Attorney General for this. The most obviously applicable law is ORS 244.040(1), which prohibits public officials from using their public power to “obtain financial gain or avoid [] financial detriment.” I’m pretty sure that if they did resell the whiskey at a profit, that would violate the law. But if they gave it away or drank it, that might not be a violation of the law at all as one could argue that they did not financially benefit from pre-empting public access to the rare commodities. Either way, it stinks to high heaven. Three of the six officials involved resigned. Governor Kotek asked for the Executive Director’s resignation as well, and it took two weeks but she eventually got it. He has not yet been replaced.

So OLCC is currently more or less sailing without a skipper. That turns out to come at a time we now know there are sharks in the water, over on the cannabis side.

II

Official Photo Portrait of Shemia Fagan, Oregon’s 28th Secretary of State

In 2020, a Portland-area employment lawyer named Shemia Fagan, who had been elected to the State Senate representing a portion of Portland and neighboring Clackamas County, won a tight three-way race in the Democratic primary for Secretary of State. Predictably she went on to win statewide election. As Secretary of State, she’s next in line for the Governorship, and as noted above, that also puts her in close contact with a variety of other officeholders and powerbrokers, and she’d eventually have been a natural choice for her political party to choose as its nominee to be the next Governor of Oregon after Tina Kotek was no longer able to serve. Meanwhile, the Secretary of State oversees the bureaucracy that creates and regulates business entities, she oversees elections, and relevant here, she oversees the State Auditor. It’s not clear to me when it started, but likely around the time Fagan took office, the State Auditor began to make a policy study of how Oregon regulates cannabis. On 23 April 2023, the Auditor’s office  published that report, concluding that OLCC and the Legislature need to streamline the laws controlling the marijuana businesses. The most notable conclusion of this audit (for our purposes here) is a recommendation that Oregon catch up to other states in making marijuana businesses a vehicle for advancing social and racial justice.

Now is a good time to introduce you to Rosa Cazares and her partner, Aaron Mitchell. They run a business enterprise trademarked “La Mota.” As a consumer, you’d mostly interact with La Mota by patronizing one of its thirty or so dispensaries located around Oregon.  It is the second-largest chain of retail cannabis dispensaries in a state so replete with them the bottom has fallen out of the market. La Mota is estimated to have receipts in excess of $40 million a year; unlike its larger competitor, it is not publicly traded so we can’t be sure. Cazares is the public face of the company, presenting as a female entrepreneur in an industry dominated by men, a young person in a field occupied by older businesspeople, and as a Latina in an industry and a region demographically dominated by whites. Mitchell’s role seems to be operational by way of supplying the dispensaries with product; he also appears to buy and sell a lot of real estate. They had a complaint about doing business in Oregon: it costs a lot of money to get a marijuana dispensary license, and even then it’s only available after going through a significant background check and compliance with a laundry list of expensive mandatory expenses, like a suite of heightened security and safety equipment for dispensaries not required of, for instance, state-licensed liquor stores.

Each of the La Mota dispensaries is a separate business entity, part of a complex network of over 72 such entities. It is a little bit cumbersome, and suggestive of something called “fraudulent misuse of the corporate privilege,” but not against the law, to create a complex network of business entities and move money around between them. You need to be able to come up with a plausible legitimate business reason for transactions resulting in the entities being unable to meet their financial obligations, in the event someone says you’re using all of those entities to, say, avoid paying your debts, or to improperly diminish your tax liabilities. Similarly, it’s not illegal to use currency to transact business, although it’s unusual to do so when banking services are available, as they are in Oregon. La Mota is mostly a vertically integrated operation, meaning from grow to retail sale, a La Mota entity is doing most of the work. Third parties are brought in to make up for shortfalls in supply of product or the processing of product into popular forms, like edibles or pre-rolls.

Cazares and Mitchell live in a very prestigious and expensive area of Portland, enjoy a lavish lifestyle, and donate generously to prominent mainstream Democratic party politicians and causes popular with them. They throw posh fundraiser parties for politicians and for charities. They make arrangements with their associates and business contacts to join them in donating to these causes. Cazares in particular enjoys a degree of celebrity; she is young, attractive, charismatic, successful Latina businesswoman. It’s far from unusual for successful entrepreneurs to behave this way. In particular, the political donations are obviously aimed at obtaining access to politicians to influence the shape of the law in ways favorable to their business interests, but although this is a little bit unseemly, it seems to be on the up-and-up.

III

Yes, it would seem that way, if it weren’t for a confluence of other facts that have come to light in rapid succession over the past two weeks or so, after an anonymous complaint was filed with the state ethics commission and a reporter from one of Portland’s two free weekly newspapers, the Willamette Week, started digging into that report’s claims. Here’s what we’ve learned thanks to those two people’s efforts:

1. Cazares and Mitchell appear to be kiting a lot of their business and personal debts, and among those include rent for the luxurious home, $1.6 million in personal taxes, and $621,000 in marijuana licensing fees. Yet La Mota kept expanding all the time those debts and lawsuits against the principals were accumulating, doing most of its deals with cash even after credit unions made banking services available to marijuana companies. Williams, in particular, was very active in the Oregon real estate market, buying and selling properties with no supporting finance instruments, suggesting that he was paying cash for the houses he was buying in the Portland metro area and on the Oregon Coast. And as their financial house of cards began to wobble, they divert more and more of their available money away from churning their debts, and instead stepped up political donations to Democrats holding, or likely to imminently attain, public office.
2. Cazares and Williams appear to have not made any political donations to Republicans. It’s plausible, of course, that they didn’t donate to Republicans because they don’t like much of the Republican policy platform. But does that theory hold water for long? Their goal for gaining access to political figures was to lighten the burden of regulatory compliance on La Mota, and Republicans seem like they’d likely be sympathetic to such a plea. Another plausible theory would be: “It’s Oregon. There aren’t any Republicans holding enough power here to be worth trying to buy.”
3. A lot of the donations made by Cazares and Williams to Fagan came after she won the election to be Secretary of State in November of 2022. She’s received a total of $45,000 from them directly, and they arranged for substantially more than that with their fundraising efforts. Again, this is not necessarily improper — politicians often continue fundraising after elections to satisfy debts previously accumulated by their campaigns or to prepare for future elections. Fagan’s PAC is currently reporting cash on hand of less than $17,000, although there might be more that wasn’t available to be disclosed in the last reporting cycle. It’d be fair to note here that upon her getting the Democratic nomination for the office, there was very little doubt that Fagan would be elected in the general election. Nevertheless, the bulk of Cazares and Williams’ donations to Fagan came after the general election.
4. Secretary Fagan is not in great financial shape personally, and politics appears to be a big part of why. She filed for divorce in August of 2019, and filings in that proceeding make a lot of her finances even easier to access than political disclosure forms. She apparently earned $151,832 in 2016 and $226,367 in 2017 in private law practice. She ran for State Senate in 2018, and her income dropped as she devoted more time to her legislative and political work. In March of 2020 (recall she was running for Secretary of State at this point but not yet through the primary), she filed paperwork with the divorce court indicating that her income was $5,550 a month, considering both her legislative and legal work.² but she declared expenses of $5,889 a month, related to nearly $2,000 a month in rent and expenses related to having primary custody of her two children. This likely isn’t comfortable but also isn’t a bankruptcy-level crisis. The Secretary of State of Oregon earns a salary of $77,000 a year. If that had been me, I’d have thought, “Well, politics is fun but I need to take care of myself before I can take care of other people, so I need to earn my way back to daylight,” and dropped out to focus on my private practice. Fagan opted to push ahead on the political path.
5. During 2022, the state auditor’s office was finishing up a comprehensive assessment of Oregon’s marijuana licensing regime, addressing several issues specifically regarding acquiring licenses, issues of which Cazares had made public and private complaints repeatedly. It’s not clear whether that audit began under Fagan or her predecessor. Beginning in January of 2021, Fagan had been urging the auditors under her supervision to incorporate concerns raised by La Mota concerning ease-of-regulation and social equity issues into their advice to the state government. At some point in early 2022, they did interview Cazares, but today say that they disregarded what Cazares said in the interview. We get to decide if we believe that. Ultimately, the audit recommended regulatory and legislative changes similar to what Cazares desired, including the use of licensing as a means to catalyze social and racial equity (see pages 19-22). If implemented, Cazares would have been one of the few beneficiaries of such equity programs in the industry. The report bears the Secretary of State’s imprimatur. Its recommendations are at least arguably in the public interest.
6. On or about 15 February 2023, Fagan moonlit from her job as Oregon’s elected Secretary of State to consult with La Mota. Her salary as the second-highest-ranking elected public official in the state is $77,000 a year. La Mota paid her $10,000 a month to consult, with an additional bonus of $30,000 per dispensary license the company obtained in states other than Oregon or New Mexico. It’s not yet clear how much presence La Mota has in New Mexico nor why New Mexico was excluded from the consulting agreement. Fagan announced on 01 May 2023 that she was terminating the open-ended agreement, but has yet to disclose how much she made while it was still active; it appears that she had a substantial financial incentive to prioritize consulting with La Mota ahead of performing her official duties–which she denies she’s done. After signing the consulting agreement, she consulted with the Oregon Government Ethics Commission. It’s not quite clear what OGEC told her — she never solicited a written opinion. She says after consulting with OGEC, she recused herself from further discussion of La Mota with the auditors. As for what she actually did to earn the consulting fee, she says it was about fifteen hours a week of mostly “tedious research.” But on at least one occasion she called the lieutenant governor of Connecticut to ask about how a cannabis company might learn “the lay of the land” there. (Connecticut very recently legalized recreational marijuana.)
7. This means that for five to six weeks in February and March of 2023, before Fagan consulted with OGEC and then recused herself from interacting with the auditors, she was taking money from La Mota and simultaneously exercising oversight over the auditors who ultimately recommended easing regulatory burdens for businesses like it, as Cazares had urged.³ The auditor’s report was issued on 28 April 2023.

Infuriatingly, it’s entirely possible that this doesn’t violate ORS 244.040(1) — if we take Fagan at her word that none of the consulting money was aimed at altering any outcome of any process underway at the Secretary of State’s office. If that’s true, there was no direct quid pro quo. Cazares and Williams got access to talk to her, and she was sympathetic to their story, but those things are legal and were properly disclosed. At least, if I were her defense lawyer, that’s what I’d argue. If I were her campaign manager, though, I’d find these facts quite a bit more challenging to explain away. It sure looks like Cazares and Williams’ image of business success was a shell around profound financial mismanagement of a big business and they were trying to buy political influence to delay and mitigate dealing with that, while they used their political access to instead gain more leverage. La Mota’s ever-inflating balloon hasn’t popped yet, but there’s a real danger that it will.

IV

It’s easy for me to identify with Fagan. It’s easy to image that she got advice from political mentors about transforming an idealistic interest in politics and making it real. She was certainly aware that Oregon has a part-time legislature and she would be able to maintain her legal career while pursuing politics. She got into some financial stress around the time she got divorced, which I find very easy to identify with. And when that was going on, she saw an opportunity to make a play for the second-highest office in the state and took it, and then she won, and is now the second-highest elected public official in the state. Under other circumstances, we could find that admirable.

But come on. Fagan is a Democrat and so am I. She’s on my team. Whatever other professional or personal similarities I might identify with her, partisan alignment is probably the most powerful bias that’s relevant here, even if I don’t much like admitting it. So the real test has to be, “Would you be sympathetic to a Republican in this situation, Burt?” Honestly, the answer is “probably not.” Looking at this through the shoe-on-the-other-foot lens, my thinking would prioritize that Fagan accepted money offered to her that would not otherwise have been offered had she not been in a position to influence the audit, and to bear the prestige and power of public office. That’s not just the consultancy but the political donations too. Had she just been Shemia Fagan, attorney at law, and called the Lieutenant Governor of Connecticut to inquire about marijuana opportunities in Connecticut, she’d have been asked to leave a message. As it was, her near-counterpart on the East Coast took her call, and that happened because she was also Shemia Fagan, a sitting public official who happens to be next in line to be Governor of Oregon.

Whether any of that violated ORS 244.040(1) or not, it’s corruption. Republicans have called for her resignation. They don’t hit the nail directly on the head by saying “An elected official cannot take funds for personal use from someone they regulate” because the Secretary of State doesn’t regulate marijuana dispensaries, they’re close enough. The audit carried the weight of the Secretary of State’s office and integrity, recommending changes to the law in La Mota’s favor, Fagan tried to make that be part of the outcome of the audit, and she did it after taking La Mota’s money both in the form of political donations and a consultancy agreement that put money directly in her pocket.

In response to inquiries for two weeks the scandal broke, Fagan was combative, not contrite. She made multiple statements like “I’m not here to apologize for my rule-following. I followed the rules.” She proclaimed she invited further scrutiny and boasted of having done her “due diligence” with OGEC. On 01 May 2023, she offered a public apology for exercising “bad judgment” and has rescinded the consultancy contract. She has not yet disclosed how much money she was paid under that contract, and has made no promises to return any of La Mota’s money or, as a great many other politicians did after La Mota’s questionable posture came to light, diverted the money to charities.

It’s hard to imagine how she could possibly recover the public’s trust that she wasn’t corrupted. For that reason alone, it’d be better for the public and the Democratic Party if she vacated her office and let the Governor appoint someone else to the remainder of her term. Even being as charitable to her as I can reasonably be, there’s no way around it: she blew it.

Just before noon Pacific Time 02 May 2023, she resigned.

V

What are the lessons here? Here’s some I think bear consideration.

First, and maybe most importantly, having 1) an accessible and protected vehicle for whistleblowers to make complaints that are treated with sobriety, and 2) a robust independent local news organization willing to investigate such complaints, are indispensable tools to uncovering public corruption and systemic flaws that permit it. There is no substitute at all for people who pay attention and care about what’s right and wrong. And that counts for you and I, as voters, just as much as it does for whistleblowers and reporters. The well-documented decline in reporting nationally, especially local reporting, is a dangerous thing and Oregon is very fortunate to have some holdouts from that trend on hand. Who is paying attention to where the money is coming from and where it’s winding up in your community? How are whistleblowers protected by your state’s laws? It’s worth looking into.

Second, Oregon has got something in its political culture that abuse of power keeps on coming up. Governor Kitzhaber corrupted himself out of office for lots of money. The OLCC’s top executives corrupted themselves out of their jobs for overhyped bourbon. Secretary Fagan is in the process of corrupting herself out of her job for… money, yes, but a lot less than Kitzhaber and his girlfriend were getting. We certainly don’t need fewer protections against public corruption here. There’s a theory that, just as an economy suffers from bad coinage driving out the good, maybe a political culture suffers from corruption driving out integrity. If everyone else is getting a taste of that sweet, sweet graft money, you’re going to be around it long enough that you will eventually transact in corruption too and if you don’t, that makes you a sucker. Maybe that’s what happened to Fagan: there was fundraising money available and she took it because that was how you finance a campaign hoping to do good after getting elected, even if the people offering it were a little seedy (and that might not have been readily apparent). But whether you believe in this political Gresham’s Law or not, it seems beyond dispute that the law as it currently exists here is inadequate to protect us from abuses of the public trust. So many of the corrupt things I’ve pointed to turned out to be not actually against the law upon close scrutiny. Is your own jurisdiction any better than mine this way?

Third, Fagan was vulnerable to corruption because she wasn’t earning enough money exercising the second-highest political office in the state to support herself and her family. She wasn’t living an extravagant posh lifestyle the way Cazares and Williams do; she had an upper middle-class existence as a single mom of two kids in a middle-class part of the Portland metro area. Her peak earning year that we know of was about $225,000. That’s good but not great money, the kind of real-people level money that real-life attorneys make, before she took public office. When she became Secretary of State, that got cut down to $77,000. But that was when her opportunity to step up the political ladder came along. Now, if she had been independently wealthy, she wouldn’t have needed the consultancy agreement. (Although I note that people who are very wealthy do sometimes engage in corrupt activities for money anyway, and it makes me shake my head in wonder as to why.) But a system where public office is something that only attracts either the ultra-rich or the readily-corrupted is not one we should want.

Fourth, let’s credit that Fagan was a plausible candidate for Secretary of State and she entered the race in 2020 with integrity and good intentions. The kinds of pressures and influences that corrupted her were probably subtle enough that she didn’t notice them right away. The hooks got sunk into her subtly, slowly, and with a lot of moral anesthetic from not just the people who were giving the money. We all possess a moral self-defense mechanism, a way for us to live with ourselves after we do things that we’d condemn others doing. Fagan, who is a human being like you and I, also possesses that trait. She surely tells herself what she did wasn’t really so bad. It wasn’t like some sinister, mustachioed figure carrying a burlap bindle with a dollar sign painted crudely on its side met with her furtively under the bridge just west of the Capitol building in Salem’s Old Town. It was all out in the open, no one objected to what was going on for years, and indeeds lots of people, people she trusted, were assuring Fagan that everything was on the up and up. The path was crooked, but while on it, the path just seemed curved, and it was ornamented with dozens of persuasive rationalizations at every step.

So getting back to the question I was asked at the start of this post, why don’t I run for city council? It’s not just that I fear becoming a pariah with Oregon’s notoriously finicky voters. It’s not even that I fear that, like Fagan, leaving my own private law practice and doing something in public service would be a financial setback at this point in my career and life. It’s also that I think I’ve kept my integrity mostly intact so far in life. I identify with her so easily: she’s a fellow employment lawyer, rebuilding her personal life after a divorce, with a lifelong interest in politics. She almost certainly took her steps into the political arena with the best of intentions. That’d be me if I did that. So like Frodo regarding Gollum telling the story of how he used to be called Smeagol, I can see that the hooks got into her, painlessly and invisibly, until one day — today, 02 May 2023 — she looked around and realized she’d been trapped. Maybe the real lesson here is that’s how corruption works.

And that’s giving her as much benefit of the doubt as I can. Some of us may be made of different stuff or have better instincts for avoiding it. But I am not so arrogant as to think myself immune. Rather than testing my awareness of this kind of thing, I’d prefer to avoid waking up one day and wondering when my integrity packed up its things to go live in the same town my virginity did years ago.

1. And it now seems that some of this rare and quite possibly overrated bourbon diverted away from public availability through dint of privilege and access is being used for fundraising by a local county’s Republican Party central committee, so it seems that hinkey hijinks with high-falutin’ hooch are a BSDI phenomenon.
2. Most Oregon legislators are paid $35,052 a year and $152 a day in per diem ‘reimbursements’ for their legislative work, so about three-quarters of her income must have come from her private law practice
3. There’s an interesting side story developing concerning half of a million dollars of development money that was awarded by the former Labor Commissioner to a charity run by Cazares, and then retracted by the new Labor Commissioner after the old Commissioner got elected to Congress. But that’s actually a different story, which I mention here only to illustrate that Cazares’ influence extends to figures beyond Secretary Fagan.