PROVIDENCE — Former Cranston Mayor Stephen Laffey has agreed to pay a $25,000 civil penalty to the Federal Election Commission for failing to properly disclose the role that a conservative, Washington-based advocacy group — the Club for Growth — played in raising hundreds of thousands of dollars for his failed U.S. Senate bid last year.

The agreement stemmed from a May 2006 request by then-U.S. Sen. Lincoln Chafee’s campaign for a federal investigation of “potentially illegal violations” of election rules by his Republican primary challenger.

At the time, Laffey’s campaign called Chafee’s complaints “completely baseless and frivolous and one of the last gasps of a desperate campaign of a Washington insider.”

But the FEC, in a Sept. 6 conciliation agreement made public yesterday, said it had “found reason to believe” that Laffey’s Senate campaign committee and his treasurer, Richard J. Sullivan, violated federal campaign law by “failing to identify the conduit of certain contributions” in his publicly filed fundraising reports.

According to the agreement, Laffey’s Senate campaign committee received $366,378 in earmarked contributions from the Club for Growth, run by former U.S. Rep Pat Toomey of Pennsylvania.

The way it worked: the group — which favors cutting government spending, death tax repeal, school choice and “Social Security reform with personal retirement accounts”— would solicit contributions for Laffey from among its own supporters, then bundle and ship the earmarked checks to the Laffey campaign.

While Laffey — who appears to be gearing up for another run for office — named the individual contributors in his filings, the FEC noted that, as charged, his disclosure reports did not identify the Citizens Club for Growth as the conduit for the money, as required by federal campaign law.

After receiving notice of the complaint, the FEC said, Laffey amended his 2005 year-end and 2006 April quarterly reports to reflect the Club for Growth’s role in raising the money. Had he not gone the step further and agreed to pay the $25,000 fine, an FEC spokesman said the agency could have filed suit against him seeking much heftier fines, including theoretically an amount equal to the $366,378 at issue.

Said former Chafee campaign manager Ian Lang yesterday: “Obviously the complaint was valid. We always said the Laffey campaign, at the time, was not properly disclosing their bundled donations.”

Laffey did not respond to inquiries, but his onetime college roommate and campaign adviser — Albany, N.Y.-lawyer Thomas Marcelle — responded on his behalf. Marcelle said the Laffey campaign sought advice from a lawyer recommended by his consultant Jon Lerner at Red Sea LLC, who said the law was “ambiguous,” but “the current practice was not to indicate” which among the many groups raising money for candidates had been the conduit for earmarked donations of this kind. He said he could name “Senators on the Judiciary Committee” who have escaped penalty for doing the same thing.

But he said the “the cost to litigate it was significantly higher than the $25,000,” so “the economics dictated” a settlement even though “when you see people from Wyoming [contributing], it’s pretty clear that was earmarked through the Club for Growth.”

In May 2006, Laffey campaign manager Nachama Soloveichik said: “As far as we know, we have followed all the rules,” she said. “We’re not trying to hide anything.” Yesterday, responding as communications director for the Club for Growth, she said: “Everything from our end was accurately disclosed and I really don’t have anything else to say. This has nothing to do with us.”

The group still runs regular updates on its Web site on what Laffey is doing and where, for example, he could be heard on radio yesterday promoting his new book: PRIMARY MISTAKE: How the Washington Republican Establishment Lost Everything in 2006 (and Sabotaged My Senatorial Campaign). Nearby was a Club for Growth call to its members to urge their U.S. Senators to vote “yes” on an amendment that would waive the Davis-Bacon wage requirements for repairs to bridges that are classified as “structurally deficient” or “functionally obsolete.”

It remains unclear when and how Laffey intends to pay the $25,000 fine.

But his campaign Web site — ELECTLAFFEY.COM — is still up and running for donors who want to “help keep the dream alive” by contributing to his undeclared political future. In his last filings, he had no cash left in his federal campaign account and $19,775 in his state campaign fund and $136,896 in outstanding loans as of June 30, 2007.

Also unclear: what the FEC made of other alleged violations cited by the Chafee camp. One raised questions about how much Laffey spent on voter mailings.

The other involved a letter that Laffey supporter Vincent Indeglia sent employees of his company asking them to collect information about Hispanics who might be registered to vote for the Senate candidate. Even though Laffey and Indeglia denied ever having consulted about the letter, the Chafee campaign nonetheless alleged that any such effort on Laffey’s behalf would break the rules against corporate contributions to federal candidates. The FEC had no comment.

kgregg@projo.com