* Councilwoman says signs have "insidious impact"
* Signs paid for by anonymous "Family Foundation"
By Kim Palmer
CLEVELAND, Oct 12 (Reuters) - Democratic lawmakers and activists nationwide are angry about a crop of billboard signs posted in early October in the Cleveland and Milwaukee areas that warn of stiff penalties for voter fraud.
The roughly 33 signs warn that "Voter Fraud is a Felony" punishable by up to 3-1/2 years in prison and a $10,000 fine, wording flanked by a large picture of a judge's gavel.
The signs will be up through the Nov. 6 election day in the Cleveland and Milwaukee areas and were paid for by an anonymous "Family Foundation," according to a spokesman for Clear Channel Outdoor, which owns the billboards and placed the signs.
Legal and labor activists and community members said the signs deliberately target and seek to intimidate blacks and Hispanics, other minorities and the poor - as well as ex-convicts - groups key to Democrats' campaign voter drives ahead of the vote.
"The billboards create a chilling effect," said Marcia Johnson-Blanco, a co-director at the Lawyers' Committee for Civil Rights, an advocacy group that asked Clear Channel Outdoor to remove the signs.
"It certainly leads to an atmosphere where some will think twice about voting," Johnson-Blanco said, adding Clear Channel Outdoor has not responded to the group's request.
Some of the signs were placed in white, although relatively poor, neighborhoods of Cleveland and Lorain, roughly 30 miles (48km) west.
Democrats and Republicans alike are working overtime to drive early voting in a handful of states, such as Ohio, that could decide if Democrats retain control of the White House and Senate on Election Day.
Turnout of urban minority and young voters was crucial to lifting President Barack Obama to the White House in 2008.
Republicans have worked to stiffen voting laws and bolster campaign field operations to prevent voter fraud.
City Councilwoman Phyllis Cleveland, who represents a part of Cleveland where most of the city's voting billboards are located, said the signs have "an insidious impact and they are designed to intimidate."
"I'm worried they will actually scare some of the ex-offenders, people with felony records who can vote," Cleveland said, explaining that there is confusion about felons voting because in some states it is illegal.
Signs similar to those in Cleveland and Milwaukee were placed in Wisconsin during the 2010 mid-term elections, when Republicans made huge gains in Congress.
"There is a great deal of incompetence in how our voter registration rolls are maintained and how records are kept, although we actually see very little fraud taking place at the voting place," said Richard Hasen, a professor of law and political science at University of California, Irvine.
The signs do not amount to voter suppression, Hasen said.
"It's true that voter fraud is a felony and we don't want people committing voter fraud," Hasen said.
The content of the message is not governed by campaign advertising regulations requiring disclosure of funding sources, said the Clear Channel Outdoor spokesman, David Yale, adding that billboards were placed in areas to "reach maximum saturation" and not to racially and socio-economically profile.
Ohio State Senator Nina Turner disagreed.
"This message was targeted, planned and not only because the neighborhoods are African American but because they are poor," Turner said.
(Writing and additional reporting by Eric Johnson; Editing by Bill Trott)
Keywords: USA CAMPAIGN/BILLBOARDS