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A special meeting of the D.C. Democratic State Committee to discuss an ongoing finance investigation degenerated into chaos Wednesday, with members deeply split on how to proceed with the inquiry.

A preliminary report from the Office of Campaign Finance last month concluded that committee finances has been improperly documented and misreported since early 2008, and moreover, that the committee had not properly reported contributions and expenditures for the 2008 Democratic National Convention, which had been placed into a separate account. Some of the donations to that account exceeded city campaign finance limits, meaning than almost $40,000 would have to be returned to donors.

The report touched off a firestorm among party faithful going back and forth on the DCDSC e-mail list; that resulted in Wednesday’s meeting being called at the John A. Wilson Building, to review the work of a special committee formed to respond to the OCF audit.

First off, the good news: The audit committee reported that it went through nearly two years worth of missing checks and receipts and has reconstructed the DCDSC accounts to within pennies. Furthermore, a Deloitte & Touche auditor has volunteered to help the Democrats put new standards and practices into place to improve the group’s financial rigor. Everyone in the room agreed those are fine developments.

“There was no embezzlement; there was no fraud,” said Orange. “The records were there, but it took some time,” said Vincent Orange, the former councilmember who is now national committeeman.

The big schism comes over the convention fundraising. The audit committee, in its response to the preliminary report filed on Sept. 1, held that the DCDSC had nothing to do with the convention account, and should not be penalized or become in any way responsible for its activities. As proof of that, the filing points out that the DCDSC never voted to authorize the convention fund, and it had a separate name, address, treasurer, and tax status apart from the DCDSC. Signing on to that point of view are chair Anita Bonds, Orange, general counsel Don Dinan, among others.

But challenging that point of view are National Committeewoman Deborah Royster, treasurer Dan Wedderburn, Ward 8 activist Phil Pannell, and others, who hold that the name of the State Committee was improperly used to raise the convention funds, and that there has been little transparency about the convention activities. Information “had to be pried out,” said Pannell, and he pointed out that many of the checks deposited to the convention account were written to the DCDSC: “When somebody writes a check to the D.C. Democratic State Committee, that should go into our account and it should be reported to us.”

You may ask: How could checks written to the DCDSC end up in another account? Bonds explained that account treasurer Marilyn Tyler Brown mistakenly appended the DCDSC name to the convention account when opening the account. Pannell accused the convention fund organizers of “deliberate dishonesty” to take advantage of the name confusion. “I’ve never seen something so ripe, so brazen, so dishonorable,” he said.

Added Royster: “At the end of the day, the problem could have been avoided with simple disclosure on the front end.”

At that point, Royster & Co. attempted to move to dismantle the audit committee and have the full State Committee determine how to proceed—-and to engage attorney Fred Cooke as an independent counsel of sorts who would “report his findings, conclusions, and recommendations” to the group. That’s when all hell broke loose.

The motion was ruled out of order, seeing as the committee’s response to the OCF report, holding that the convention fundraising was unrelated, had already been filed weeks ago. That led to lots of shouting and arguing. Orange rightly pointed out that if it’s an independent counsel people are looking for, Cooke may not be the guy to rely on—-Orange pointed out that he’d done legal work for Royster, who sent a letter asking for the OCF inquiry. “The person who has [requested] the inquiry now wants to select our attorney, and that is a conflict of interest,” he said.

Eventually, most of the members of the audit committee (including Orange and Dinan) walked out, along with much of the rest of the 40 or so who showed up for the meeting. The remaining 25 or so proceeded to vote on and pass the measure, which stands to take further discussion on the finance issues out of the hands of the audit committee.

Said Bonds to the forces behind the motion: “It may be just a political game. If you want to win the political game, so be it.”

It is unclear when the Office of Campaign Finance will make a final ruling; another DCDSC meeting is set for Oct. 1.