A federal criminal investigation targeting John Edwards is examining how much the two-time presidential candidate knew about money used to cover up his extramarital affair and out-of-wedlock child and whether he had other practices that pushed the bounds of campaign-finance laws, people involved in the case have told the Associated Press.
A federal grand jury meeting in Raleigh, N.C., is combing through records and testimony involving several political organizations and individuals connected to Mr. Edwards and trying to determine if the former North Carolina senator and 2004 Democratic vice presidential nominee broke any laws. A recently issued subpoena focuses on a web of these political groups allied with Mr. Edwards, according to subpoena details provided to AP that offer a glimpse into the investigation being conducted behind closed doors.
The case largely stems from money spent to keep Mr. Edwards' mistress, Rielle Hunter, in hiding along with former campaign aide Andrew Young, who initially claimed paternity so Mr. Edwards could continue pursuing the White House without the taint of the affair.
Investigators are looking chiefly at whether funds paid to Miss Hunter and Mr. Young from outside political groups and Mr. Edwards' political donors should have been considered campaign donations since they arguably aided his presidential bid, according to several people involved in the case who spoke on the condition of anonymity because of the ongoing probe. And they're also looking closely at whether any entities linked to Mr. Edwards operated illegally.
While it could not be learned if federal prosecutors have found violations of a specific statute, federal election laws require disclosure of the money spent on campaigns for federal offices, limit the amounts of such donations and prohibit the conversion of campaign funds to personal use.
Mr. Edwards' attorney, Wade Smith, would not discuss specifics of the investigation but said, "We do not believe there is evidence that John has violated any election laws."
The investigation has been led for nearly two years by George Holding, the U.S. attorney in Raleigh appointed by President George W. Bush, with help from FBI and IRS agents and attorneys from the Justice Department in Washington. North Carolina's senators have asked President Obama not to replace Mr. Holding until he finishes this probe.
Several people interviewed by investigators say the questions focused on Mr. Edwards' knowledge of campaign-finance law, even going back to whether he used his Senate office to conduct political business in violation of congressional rules. Subpoenas issued in the case request e-mails, records and other material related to more than two dozen individuals and organizations connected to Mr. Edwards and his allies throughout his political career.
Atop the subpoena list, read to the AP by someone with access to a subpoena, is the Alliance for a New America, which is what is known as a political 527 group, named for the tax code section that governs it. Also on the list is a like-named private entity called Alliance for a New America LLC, or AFNA LLC, and Mr. Edwards' former campaign manager, Nick Baldick, who ran the political 527 group in support of Mr. Edwards' bid for the 2008 Democratic presidential nomination. (IRS records for the same groups refer to the groups as Alliance for New America, without an "a.")
Mr. Baldick and his attorney, Jim Lamb, would not comment on the federal investigation, but Mr. Lamb said Mr. Baldick has been told he is not a target of it.
Federal records show that about $3.3 million of the $4.8 million raised by the 527 was distributed to AFNA LLC for unspecified "consulting services." The 527 and the LLC shared not only their name, but the same Alexandria, Va., post office box and the same contact, a Baldick associate named Katherine Buchanan. A crucial difference between the two Alliance entities was that the LLC was a limited liability company that did not have to publicly disclose how its money was spent.
Lloyd Mayer, a Notre Dame law professor and tax expert, said it's clear that the alliance's creators established the LLC to hide the details of expenditures. It's a legal maneuver that campaign-finance observers have long feared might become a part of politics as money managers try to shield their operations from the eyes of competitors and the public.
"The spirit of the law is being violated here," said Mr. Mayer, who has represented major advocacy groups including the NAACP National Voter Fund. "You shouldn't be able to hide what you're spending money on. But is the letter of law being violated, or did they find a cute loophole?"