A Project of The Annenberg Public Policy Center

Upstate Insults

Mudslinging and misleading in a New York special election.


Summary

New York Assembly Minority Leader James Tedisco, a Republican, and businessman Scott Murphy, a Democrat, are battling to fill a House seat in New York’s 20th congressional district that was vacated when its occupant was appointed to the Senate. The special election is scheduled for March 31. Recent ads have included some false and misleading claims: 

  • Murphy and the DCCC claim that Tedisco won’t say whether he supports capping salaries for executives of companies receiving federal bailout money. That’s false. Tedisco has said that he supports the idea.
  • On the other side, Tedisco and the NRCC claim Murphy gave incentives to executives of a company that was posting financial losses. There’s more to it than that. While Murphy served on the board of directors of Synacor Inc., four top executives did receive bonuses. But although the company posted an overall net loss, net sales also increased substantially, which was a condition for the executives to receive the incentives.
  • The NRCC also claims Murphy failed to pay outstanding business taxes. That’s misleading. Tax warrants were issued to a company formerly owned by Murphy, but the warrants for more than $21,000 worth of taxes were issued after Murphy sold his company. And state statute actually says that the surviving company is responsible for all liabilities. Nearly all of the money has been paid by the company that acquired Murphy’s.

Analysis

We said on the FactCheck Wire back in February that we would keep an eye on the upcoming special elections. The first of those is March 31; it’s a race to fill the  House seat vacated by Democrat Kirsten Gillibrand, who was appointed to fill Hillary Clinton’s Senate seat after Clinton became secretary of state.

Democrat and businessman Scott Murphy and Republican State Assembly Minority Leader James Tedisco have been hitting the airwaves, along with the Democratic Congressional Campaign Committee and its counterpart, the National Republican Congressional Committee. Each side is trying to portray the other as a bad choice in tough economic times. But both are stretching the facts and digging deep — very deep — to come up with negative charges about the other guy.

Mum on Stimulus and Salary Caps?

Both Murphy and the DCCC have hit Tedisco in ads for not taking a stand on the recently signed American Recovery and Reinvestment Act of 2009. And a radio ad by the DCCC, launched on Feb. 28, also says Tedisco "refuses to say" whether he supports caps on compensation for executives.

DCCC Radio Ad:
"Just Won’t Do"

[TET ]

Announcer: It’s the worst economic downturn since the Great Depression … even more jobs lost upstate. But Jim Tedisco refuses to say whether he supports President Obama’s economic policies … Jim Tedisco even refuses to say whether he supports the stimulus.

Instead, Jim Tedisco attacked his opponent, and The Times-Union said Jim Tedisco’s attack on Scott Murphy, quote, "misrepresents the facts." Scott Murphy has paid all his taxes.

His company in Glens Falls helps upstate businesses grow and create jobs. But he places caps on executive pay. Scott Murphy supports caps on executive compensation for companies receiving federal bailout money, too. Jim Tedisco? Again, he refuses to say. That’s an Albany politician for you. Scott Murphy for Congress. A businessman who knows how to create jobs in upstate New York.

Murphy: I’m Scott Murphy, running for Congress, and I approved this message." Paid for by the Democratic Congressional Campaign Committee and authorized by Scott Murphy for Congress. [/TET]

It does remain unclear if Tedisco would have voted yes or no on the stimulus package that President Obama signed into law in February. Five days after the ad began running, the New York Daily News quoted Tedisco campaign spokesman Adam Kramer as saying: "Jim [Tedisco] has been clear on this all along. He would support a stimulus that had his amendments to cut the pork and waste and where the money would go in a straight line to help the middle class." But without such amendments? Tedisco hasn’t said.

As for capping salaries of executives as part of federal bailout plans, Tedisco has said he supports the move, contrary to the radio ad’s claim.

The DCCC’s own sourcing for the ad lists a post by Maury Thompson on the Glens Falls PostStar.com blog "All Politics Is Local." Thompson posted a portion of a telephone interview with Tedisco. In answer to Thompson’s first question on the subject of capping salaries, Tedisco equivocated: "I think that’s something that we’ve really got to seriously look at." However, when the reporter asked Tedisco a follow-up question on the subject, he said: "Well I haven’t seen the legislation," but added, "I think we have to cap it. I’m not sure where at right now." During the interview, Tedisco continued: "And also — yeah — at some point they have to be capped for these CEOs, especially at a time when we’re trying to get money to middle class people who are suffering the effects probably the most and didn’t give out these risky loans."

Two days after the DCCC ad started airing, Thompson posted part of another interview in which Tedisco was more emphatic: "I think the president has it right. I think a half-a-million dollars is realistic — because when they say, ‘Well you’re not going to get the best and the brightest and the most intelligent’ — look — for a half-a-million dollars I think you’re getting some of the best and the brightest and the hardest working."

Tedisco’s campaign has called for the Murphy campaign and for stations to stop running the radio ad. But the Murphy campaign told us that it’s still on the air.

Speaking of Executive Compensation …

A TV ad from Tedisco’s campaign counters that Murphy "gave huge incentives to corporate executives who were losing millions." The NRCC echoes that in a radio ad that says: "Murphy approved huge bonuses for a handful of top executives, while his company recorded massive losses." 

Tedisco for Congress Ad:
"The Real Scott Murphy"

[TET ]

Announcer: Here’s what Scott Murphy never wanted us to know. He brags about bankrolling jobs in India, then changes his resume to hide it.

And Murphy gave huge incentives to corporate executives who were losing millions. Murphy’s just another Wall Street millionaire hiding a past that’s threatening our future.

Tedisco: I’m Jim Tedisco and I approved this message because i’m fighting for jobs, lower taxes and you. [/TET]

There’s more to the story than that. According to reports filed with the Securities and Exchange Commission in 2008, while Murphy served as a member of the board of directors for Synacor Inc., the company recorded a net loss of nearly $1.6 million in 2007. That same year, four top company executives received compensation totaling about $1.2 million. Of that amount, $439,101 was for "non-equity incentive plan compensation" or "option awards." Whether those bonuses would be considered "huge," or the losses considered "massive," is open to interpretation. In its filing, Synacor referred to the losses as "significant," but noted that net losses that year had actually decreased from the 2006 amount of $2.3 million. Also, Synacor explained that "annual cash incentives for the executive officers and other key employees were designed to reward short-term performance that contributes to meeting key corporate goals." Those goals included "growth in net sales." And Synacor reported $39 million in net sales in 2007, nearly more than the total net sales for 2005 and 2006 combined.

Unpaid Taxes?

The NRCC ad also says, "Millionaire Scott Murphy was caught not paying taxes on his own business" and "said it wasn’t his responsibility, but state records proved that it was." But Murphy’s company paid all the taxes that came due before it was sold in 1998. It’s also clear that any lingering liabilities are the responsibility of the company that bought Murphy’s.

NRCC Radio Ad

[TET ]

Announcer: Scared? You’re not alone. It feels like your job is hanging by a thread. Your retirement is bleeding out. The world is upside down. So what are the politicians doing? You wouldn’t believe it. To replace Kirsten Gillibrand in Congress, they have chosen the poster boy for everything that’s wrong with Wall Street, Scott Murphy.

Scott Murphy approved huge bonuses for a handful of top executives, while his company recorded massive losses. Millionaire Scott Murphy was caught not paying taxes on his own business, said it wasn’t his responsibility, but state records proved that it was. Scott Murphy hasn’t been honest with his taxes, but wants to go to Washington and vote on yours, right.

Does upstate New York really need a Wall Street insider wheeler-dealer representing us in Congress? What do you think?

Female Announcer: Paid for by the National Republican Congressional Committee. Not authorized by any candidate or any candidate’s committee. The National Republican Congressional Committee is responsible for the content of this advertisement. www.nrcc.org [/TET]

At issue are three tax warrants sent from the New York State Department of Taxation and Finance in 1999 to Small World Software Inc., an online consulting company cofounded by Murphy in 1994. Small World was purchased by iXL-New York Inc. on Jan. 26, 1998. Taking them in turn:

One warrant for $20,805.25 was for sales taxes, plus penalties and interest, owed for a three-month period ending in February 1998 that overlapped both ownerships. The taxes weren’t due until March 1998, two months after iXL purchased Small World. The warrant was later satisfied in December 1999 by iXL.

Another was issued because Small World paid a withholding tax 13 days late for the period ending Dec. 31, 1997. The payment for the withholding tax was due Jan. 6, 1998, and was paid by Small World on Jan. 20, according to the Murphy campaign. The bill for the late penalty and interest, totaling $446.85, almost certainly wouldn’t have been received by the company until after it had been sold at the end of January.

A third warrant was issued to Small World for $298.50 in penalty and interest charges relating to a corporation tax payment that the campaign says was due in September 1998, nearly eight months after ownership changed hands. (Normally this bill would be due in the spring, but an extension may have been granted.) The tax itself was paid in December of that year, again according to the Murphy campaign, by iXL. It stands to reason that iXL would also be responsible for the penalty and interest.

So, three warrants were at issue. One was for a penalty and interest on a tax bill paid 13 days late by Small World before the merger. Another was for penalties and interest on a bill that was paid late by iXL and didn’t come due until after the merger. And a third, by far the largest, was for sales tax, plus penalties and interest, that wasn’t due until after the merger; that warrant was paid by iXL. And even though some of the tax bills covered periods before iXL took over Small World, here’s the key controlling fact: iXL-New York is incorporated, like many companies, in Delaware. State law in Delaware says that when one company buys another, it assumes the debts and obligations of the acquired company:

Delaware General Corporation Law, sec. 259(a): [A]ll debts, liabilities and duties of the respective constituent corporations shall thenceforth attach to said surviving or resulting corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it.

The NRCC points out that Murphy remained on staff with the surviving company as the chief operating officer until 2000. But it was no longer "his own business," as the ad asserts. The Glens Falls Post-Star reported: "Murphy said [that] while he did work for the company that bought Small World Software, he did not have ‘responsibility for things like taxes and filing various forms with the government.’ "

"Scott Murphy paid all his taxes,” Ryan Rudominer, a spokesman for Murphy, told The Hill. “This bill arrived after Scott was no longer in charge of the company. Scott doesn’t know why the corporation that purchased his company did not pay it."

iXL subsequently merged with another company. The warrants for $298.50 and $446.85 had yet to be paid as of the end of January 2009, according to state tax records.

Not Proud of Jobs in India?

Tedisco’s television ad also claims that Murphy "brags about bankrolling jobs in India" and then "changes his resume to hide it." But that’s a different story than the one Murphy has told.

The Tedisco campaign and the NRCC point to two articles to back up the assertion. In a July 2004 piece in New York’s India Abroad about the acquisition by eBay.com of Baazee.com, an Internet auction site based in India, Murphy is mentioned as one of Baazee.com’s initial investors. According to India Abroad: “Investors in Baazee.com include Australian media baron Rupert Murdoch’s Star television network, the investment arm of India’s largest private banking company ICICI Bank, the private American equity group NewBridge Partners, and angel investor Scott Murphy.” And an April 2006 article in the Long Island Business News reported: "Prior to joining Advantage [Capital Partners] in 2001, Murphy founded Internet-related businesses Small World Sports and Baazee.com, an online auction company that was sold to eBay."

Whether those mentions qualify as "bragging" is open to debate. The other claim, that Murphy tried to hide his involvement, rests on two different versions (one current and the other cached) of Murphy’s biography on the Web site of Advantage Capital Partners. Captured images of the Web page show that the current version of the biography says that Murphy created "two different Internet-related businesses," while an older version of the bio says that Murphy created "three Internet-related businesses," including Baazee.com.

Murphy told the Albany Times-Union that his involvement wasn’t as a creator of the auction site now known as eBay.in. According to a Feb. 3 article in the newspaper, Murphy says he "merely advised" two graduate students who went on to create the India-based site. Murphy added that the site’s buyers and sellers were all from India, and he implies there was no deliberate attempt to hide anything about his involvement with it:

Times-Union, Feb. 3: "It’s not something I’m ashamed of, and I’m happy to explain it to anyone," Murphy said, adding if it has been left out of any information about him, it is an oversight and the consequence of his campaign’s fast start.

We asked for clarification on whether Murphy was an "investor" in the company. The Murphy campaign told us he provided some initial capital and advice to the two students who started the company, and stressed that the company didn’t compete with the U.S. for jobs. We can’t say what the intent was behind the change in Murphy’s bio, and the Tedisco campaign hasn’t proven that Murphy wanted to "hide" his association with the company.

— by D’Angelo Gore

Update, March 12: After we published this article, we discovered two other misleading ads targeting Murphy. These come from a third-party group, Our Country Deserves Better PAC. See our post on these spots on the FactCheck Wire.

Sources

Hornbeck, Leigh. "Newcomer says job creation is strength." Albany Times-Union, 3 Feb. 2009.

Thompson, Maury. "Q&A with James Tedisco: Part 4." Glen Falls Post-Star Blog "All Politics is Local", 2 March 2009.

Halbfinger, David M. "Stimulus Is Early Focus in New York House Race." New York Times, 23 Feb. 2009

Editorial. "Take a stand, Mr. Tedisco." Albany Times-Union, 19 Feb. 2009.

Kraushaar, Josh. "Murphy is GOP’s next tax target." Politico.com, 5 Feb. 2009.

India Abroad (New York). "eBay buys Baazee.com for $50 million," 2 July 2004.

Powderlly II, Henry E. "On the Move." Long Island Business News, 21 April 2006.

Synacor, Inc. Amendment No. 8 to Form S-1, as Filed with The Securities and Exchange Commission, 11 April 2008.

Lieu, Irene Jay. "War of words paints mixed picture." Albany Times-Union, 15 Feb. 2009.

Hornbeck, Leigh. "Ad watch: 20th Congressional District." Albany Times-Union, 3 March 2009.

Thompson, Maury. "Murphy answers tax issue." Glens Falls PostStar.com, 4 Feb. 2009.
Jacobs, Jermey P. "GOP aims to retake ex-Gillibrand seat." TheHill.com, 9 Feb. 2009.

Thompson, Maury. "GOP takes aim at Murphy." Glens Falls Post-Star, 3 Feb. 2009