Federal probe into campaign funds latest headache for Dem Gov. Malloy

Connecticut Gov. Dan Malloy, a top Hillary Clinton booster and head of the Democratic Governors Association, returned from a starring role in his party’s national convention to gathering storm clouds back home – amid a federal investigation into fundraising surrounding his 2014 reelection campaign.

The Hartford Courant first reported that a federal grand jury is being convened to investigate whether the Connecticut Democratic Party broke campaign finance law by illegally using contributions from state contractors to benefit Malloy’s campaign. It’s the latest chapter in a controversy that began when Republicans filed a complaint arguing Democrats wrongly funded Malloy mailings with $250,000 from an account that’s allowed under federal law to take state contractor money.

Because Malloy chose to accept public financing through the state's clean elections law, he was not permitted to receive additional donations.

The matter is now causing political headaches for the governor – who already faces low approval ratings, and grappled earlier this year with the fallout from GE moving its headquarters out of Connecticut – as state Republicans try to tie the case to other controversies in the headlines.

“The Connecticut Democratic Party, Gov. Malloy and Hillary Clinton all think there is a political class to which they belong that allows them to play by a different set of rules. They did not admit guilt. They simply said that we do not think we broke the law, so we did not break the law,” JR Romano, spokesman for the Connecticut Republican Party, told FoxNews.com.

Malloy addressed the Democratic National Convention on Monday as a surrogate for Clinton.

In the campaign finance case, state Democrats have said it was unclear whether it was against election law to get funds for the party from state contractors.

Last June, the Democratic Party reached an agreement to make a $325,000 payment to the state to settle the complaint to the State Elections Enforcement Commission (SSEC). The fine also effectively ended attempts by the State Elections Enforcement Commission efforts to obtain emails and other documents related to the case.

After the SEEC voted to approve the settlement, Connecticut Democratic Party Executive Director Michael Mandell issued a statement saying it would “clarify a fundamental legal question” about the “conflicting intersection between state and federal law.”

The agreement was reached around the time Malloy’s approval ratings hit an all-time low.

Connecticut Republicans believe the federal investigation and payment of the fine show Democrats simply chose to follow their own rules.

But the state Democratic Party insists it “fully complied” with state and federal laws during the 2014 cycle.

“We believe this agreement provides a sound framework for dealing with the conflict between state and federal campaign finance laws, and also strengthened a campaign finance system in which both parties operate. In regard to recent action by federal authorities, we have advised authorities of our intent to cooperate and will continue to do so in order to bring this to a close and continue to do the work of our party to elect Democrats on all levels," Leigh Appleby, Connecticut Democratic Party spokesman, said in a statement to FoxNews.com.

The controversy continues to spawn new issues for the party and the governor.

On July 27, Trumbull, Conn., First Selectman Timothy M. Herbst claimed in a complaint filed with the SEEC that the Connecticut State Democratic Party did not properly account for legal fees incurred when Democrats hired lawyer David S. Golub in its defense.

“The Connecticut Democratic Party paid a $325,000 fine to keep their emails out of public view and the conduct leading to that fine is now being investigated by a federal grand jury to determine if laws were broken,” stated Herbst.