After the reported arrest of a top aide, what happens to John Liu?

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John Liu. (Dan Rosenblum)
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City Comptroller John Liu's campaign treasurer was arrested by the U.S. attorney's office on fraud and obstruction charges, reports David Chen of the New York Times.

Liu has been struggling to put to rest questions about his fund-raising; his bundler got around legal limits by using straw donors to hide the original sources of some campaign funds.

The arrest today could be particularly damaging to Liu's mayoral ambitions because it undermines the central rationale of electing the city's accountant to run the whole city. Democatic consultant Hank Sheinkopf, who is not kindly disposed toward Liu to begin with, said it's unlikely Liu can run for mayor at all now, because "this arrest today is closer than before."

He was referring to the previous arrest of a Liu fund-raiser, Oliver Pan, whom Liu said was not integral to the campaign.

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Sheinkopf also said it might keep Liu from even getting re-elected to the comptroller job, which he won in 2009.

"It's hard to explain how the treasure of your campaign and the people around you are getting arrested ... when your job is to manage money," Sheinkopf said.

Two City Council members, Dan Garodnick and Domenic Recchia, are eying a race for city comptroller. Garodnick declined to comment. Recchia said Liu has to decide "what's best for him, his family, and for New York City."

Liu though, has bucked conventional wisdom before, charging ahead in the face of adversity and skepticism. He didn't slow down (all that much) his campaign operations when the Times first reported irregularities in his campaign fund-raising earlier this year. Nor did he stop after a fund-raiser was arrested. And he didn't slow down his 2009 campaign for comptroller after part of his biography was contradicted by his mother, and it became a front-page story in the Daily News. One of his aides agreed in a post mortem that all the attention might have been a net positive.

Spokespeople for Liu's campaign and the comptroller's office did not immediately respond to a request for comment.

UPDATE: Greg Floyd, president of Teamsters Local 237 and vocal critical of Liu's pension plan, said, "At this point, he can't step down. The office is the only thing he can bargain with if he gets into more trouble."

Recchia, chairman of the Finance Committee in the City Council, said through a spokesperson, "I'm keeping John Liu and his staff in my thoughts. I think he needs to look inside his heart and decide what's best for him, his family, and for New York City."

Publisher Tom Allon, a declared mayoral candidate, said the arrest of Liu's treasurer "is just the tip of the iceberg" of financial wrongdoing "going on in citywide races."

Allon's full statement:

"The arrest of John Liu's treasurer today is yet another example of how the political system in New York is flawed and potentially corrupts candidates and their staffs in their sprint to raise money. I believe that this is just the tip of the iceberg in terms of campaign finance violations going on in citywide races. I believe too many elected leaders use their staffs to raise money, allegedly on `their own time,' which we all know to be untrue and disingenuous. There are too many favors and zoning decisions being traded to raise campaign money. One donor recently told me that they were forced to make a donation to two candidates for citywide office who had zoning power over their construction project. This is plainly wrong -- perhaps even illegal -- and makes voters disgusted by the whole political process. As a first-time candidate who has covered politics for a long time as a journalist and publisher, I am becoming increasingly shocked at the level of corruption that goes on in such a brazen and routine manner each day."

UPDATE: According to the criminal complaint, treasurer Jennny Hou instructed a campaign volunteer to forge donor signatures on donor cards, arranged for donors to funnel money through "straw donors," bilked the city matching funds program, and failed to hand over subpoenaed information.

The complaint describes Hou's activities dating back to 2009, during Liu's race for mayor.

On July 10 of last year, Hou is reported to have instructed a volunteer in forging donor cards, saying, "just make sure the handwriting looks as close to the donors [handwriting] as possible. if it's too difficult, don't' take the risk."