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The
Corporate Reform Weekly
Vol
V, #24 June 12, 2006
In
this Issue…
Congressional
Lobbying and Ethics
1.
Members of Congress and their staffers took $50 million worth of privately-paid
travel
2.
New documents paint ring of cronyism around Rep. Lewis
Executive
Pay
3.
SEC considers changing executive pay disclosure rules to deal with stock
options backdating
Scandal
4.
Court lets Merrill Lynch executives free on bail in Enron trial, presaging
favorable appeal
5.
Lawmaker says Fannie Mae CEO probably lied to Congress
This
Week’s Action Item
Let’s
end privately funded travel
Congressional
Lobbying and Ethics
1.
Members of Congress and their staffers took $50 million worth of privately-paid
travel
Members of
Congress and their staffers went on 23,000 privately-funded trips valued at $50
million between January 2000 and June 2005, according to a study by the Center
for
Public
Integrity, American Public Media and Northwestern University's Medill News
Service. In total, the trips amounted to 81,000 days, or a combined 222 years.
Many of the
trips were to popular vacation destinations, including 200 trips to Paris, 150
to Hawaii and 140 to Italy, as well as many trips to ski resorts. Often trips
involved a short speech or presentation sandwiched in between what appears to
have been several days of vacation. Congressional ethics rules do allow for
sponsored travel as long as the trips are not “substantially recreational in
nature.”
Though
lobbyists are strictly prohibited from providing trips, disclosure forms show
that at least 90 trips, valued at $145,000, were sponsored by firms registered
to lobby.
According to
the reports, both Democrats and Republicans were frequent travelers on private
dollars. But members of the House accepted more privately-funded travel than
Senators. Ten House offices accepted more than 200 privately sponsored trips
and 11 House offices had travel costs of more than $350,000. No Senators
crossed either of those thresholds.
One of the
most frequent travelers was Susan Hirschmann, who was the chief of staff to
then-House Majority Whip Tom DeLay (R-Texas) from 1997 to 2002.
Hirschmann took 18 trips between 2000 and 2002, many with her husband David
Hirschmann, who was a registered lobbyist for the Chamber of Commerce and is
now an executive there.
The most
frequent traveler, though, was Brian Gaston, chief of staff to House Majority
Whip Roy Blount (R-Mo.). Gaston has been on 39 privately funded trips.
For more, see:
“Power Trips,” Center for Public Integrityhttp://www.publicintegrity.org/powertrips/report.aspx?aid=799#
“Ex-Aide
to DeLay Often Traveled on Others' Tab,” By R. Jeffrey Smith, Washington
Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/06/08/AR2006060801544.html?nav=rss_business
2.
New documents paint ring of cronyism around Rep. Lewis
As a federal
grand jury in California continues to investigate whether Rep. Jerry Lewis
(R-Calif.) used his perch atop the House Appropriations Committee to reward
campaign contributors and friends with lucrative contracts, documents released
last week began to connect some dots, implicating a number of associates.
One associate
was Jeff Shockey, now a top aide to Lewis, who received nearly $2 million in
severance payments from lobbying firm Copeland, Lowery, Jacquez, Denton and
White when he left the firm in 2005 to join Lewis’s staff. Lewis’s connections
to the firm are under federal investigation.
Questions have
also been raised about Lewis’s relationship to Nicholas Karangelen, the founder
and president of Trident Systems Inc. and also the head of the Small Biz Tech
Political Action Committee. Records show that Trident received at least $11.7
in recent defense spending bills coming out of the appropriations committee.
Lewis’s
stepdaughter, Julia Willis-Leon, has allegedly been paid more than $42,000 by
the Small Biz Tech Political Action Committee.
More
seriously, former Lewis aide and current Copeland, Lowery, Jacquez, Denton and
White partner Letitia White allegedly handled earmarks while working for Lewis.
Reportedly, Trident’s Karangelen paid $500,000 towards a $1 million Washington
townhouse that White recently purchased. If that contribution benefited White
as compensation for her services while she working for Lewis, it would have to
be disclosed under lobbying laws.
Also last
week, NBC News interviewed Tom Casey, the CEO of Audre Inc., a now-defunct
computer software computer company. Casey told NBC News that he Lewis allowed
Casey to write language for the appropriations bill himself and then repeatedly
urged him to hire a lobbyist – Lewis’ good friend former U.S. Rep Bill Lowery,
a partner at Copeland, Lowery, Jacquez, Denton and White. Casey said that Lewis
also asked him to set up stock options for Lowery, but to issue them through
Canada and in somebody else’s name.
For more, see:
“Powerful Lawmaker's Relative Linked Financially to Contractor,”
By Peter Pae,
Tom Hamburger and Richard Simon, Los Angeles Times: http://www.latimes.com/news/local/la-na-lewis8jun08,0,3348102.story?coll=la-home-headlines
“Lobbyist Says
Client Paid Half the Cost of Town House,” By DAVID D.
KIRKPATRICK, New York Times: http://www.nytimes.com/2006/06/07/washington/07white.html
“House
Appropriations chairman under fire: Did Rep. Jerry Lewis use his powerful
position to enrich a friend?” By Aram Roston, Lisa Myers & the NBC
Investigative Unit
http://msnbc.msn.com/id/13191097/
Executive
Pay
3.
SEC considers changing executive pay disclosure rules to deal with stock
options backdating
With more and
more companies under scrutiny for illegal stock options backdating, Securities
and Exchange Commission Chairman Christopher Cox last week proposed new
executive pay disclosure rules that would require companies make public all
decisions related to pay of top executives.
Cox said that
under his proposed rules, companies would have to include a “Compensation
Discussion and Analysis” section in their financial reports that explains the
rationale behind all pay decisions and includes the days that stock option
awards were priced.
“We expect
this to be written in plain English so every investor can understand it,” Cox
said. “No shareholder should need a machete and a pith helmet to find out how
much the CEO makes…We propose to tell compensation committees to release all
information related to their decisions, and we mean all.”
At least 34
companies have disclosed criminal, regulatory or internal investigations into
whether they illegally changed dates on stock options award grants to
executives. Changing the grant date can make the option more valuable because
when executive cash out options, they get the difference between the current
stock price and the stock price on the day the options were issued.
Also chiming
in last week was Sen. Richard Shelby (R-Ala.), who chairs the Senate Banking
Committee. “If you're backdating stock options -- they're already
investigating a lot of this -- that's fraud,” Shelby told reporters.” We should
get rid of it. And we should punish people who do that. It helps destroy the
belief in the integrity of the marketplace. Transparency and integrity are keys
to capital markets.”
“SEC's Cox
Plans New Rules on Executive Pay Amid Options Probes,” Bloomberg News: http://www.bloomberg.com/apps/news?pid=10000103&sid=apB_L6igigGM&refer=us
“Questions
Raised on Another Chief's Stock Options,” By BARNABY J.
FEDER, New York Times: http://www.nytimes.com/2006/06/09/business/09options.html
Scandal
4.
Court lets Merrill Lynch executives free on bail in Enron trial, presaging
favorable appeal
Former Merrill
Lynch Daniel Bayly and Robert Furst, who were convicted in 2004 on
Enron-related fraud charges, were allowed to go free on bail last week as they
appeal their conviction. The decision by the 5th US Circuit Court of Appeal was
generally considered to be a sign that Bayly and Furst stand a good chance of
having their conviction overturned since courts rarely issue such orders unless
the defendant is able to demonstrate that there is a substantial chance for
reversal.
Bayly and
Furst were convicted on fraud in connection with a 1999 deal that involved a $7
million loan of energy-generating barges in Nigeria. The deal was set up to
look like a sale so that Enron could book the profits and meet its quarterly
earning projections.
The decision
to set Bayly and Furst free was also interpreted favorably by Mike Ramsey,
Kenneth Lay’s lead attorney, who said Lay was “elated by the news.”
"It means
the 5th Circuit is taking the task force seriously, grading their papers seriously,"
Ramsey told reporters. "They're looking seriously at their conduct, the
way they investigated this case and their theories of prosecution."
For more, see:
“Pair from Merrill Lynch appealing Enron convictions,”By JOHN C. ROPER, Houston
Chronicle http://www.chron.com/disp/story.mpl/front/3953418.html
“News gives
lawyers glimmer of hope for Lay, Skilling,” by Greg Farrell, USA Today: http://www.usatoday.com/money/industries/energy/2006-06-08-enron-usat_x.htm
5.
Lawmaker says Fannie Mae CEO probably lied to Congress
Last week, at
a hearing on Fannie Mae, Richard Baker (R-La.) accused former Fannie Mae CEO
Franklin D. Raines of lying to Congress in 2004, when Raines first testified
about a six-year accounting fraud at the company.
"There
seems to be clear evidence to my mind that Mr. Raines perjured himself,"
Mr. Baker said, referring to Mr. Raines's October 2004 testimony, in which
Raines distanced himself from the $10.6 billion accounting fraud at the
company.
The
accusation follows a recent report released by the Office of Federal Housing
Enterprise Oversight (OFHEO), which says the company spent six years falsifying
earnings numbers so that top executives could meet earnings targets, collecting
$25 million in bonuses. The total value of the fraud was $10.6 billion.
The
report describes a board of directors that was asleep at the wheel while CEO
Franklin Raines and CFO J. Timothy Howard manipulated earnings so that they
could get the maximum payouts. Raines earned $90 million in compensation
between 1998 and 2003. The report said he created an “unethical and arrogant culture”
at the top of company.
Following
the report’s release, Fannie Mae agreed to pay $400 million in penalties, but
did not admit or deny guilt. Now investigators are looking more closely
documenting the specific roles that current and former and current executives
played in the fraud.
For more, see:
“Congressman Accuses Fannie Mae's Ex-Chief of Lying in Testimony,” Associated
Press: http://www.nytimes.com/2006/06/07/business/07fannie.html
This
Week’s Action Item
Let’s
end privately funded travel
Last week, a
study by a study by the Center for Public Integrity, American Public
Media and Northwestern University's Medill News Service found that members of
Congress and their staffers went on 23,000 privately-funded trips valued at $50
million between January 2000 and June 2005, according to In total, the trips
amounted to 81,000 days, or a combined 222 years. (See news item #1)
Many of the
trips were to popular vacation destinations, including 200 trips to Paris, 150
to Hawaii and 140 to Italy, as well as many trips to ski resorts. Often trips
involved a short speech or presentation sandwiched in between what appears to
have been several days of vacation. Congressional ethics rules do allow for
sponsored travel as long as the trips are not “substantially recreational in
nature.”
As this week’s
action item, please call up your elected officials in Washington and ask them
to document all their privately funded travel. Tell them that you don’t like
them traveling on private money, particularly when that money comes from
private corporations. Elected officials are public servants and they shouldn’t
be providing private audiences with those who can afford to pay their travel
bills.
Help
spread the word about The People's Business
We encourage
you to tell everyone you know about the Citizen Works book, The People's Business
and to distribute promotional flyers locally. Flyers are available online, or
if you would like to have some flyers mailed to you, please e-mail news@citizenworks.org.
The People's
Business, which is available in stores everywhere, examines the very nature of
corporate power, presenting a range of strategies to curtail it, explaining how
ordinary people can restore citizen control. Bringing together the
recommendations of the Citizen Works Corporate Reform Commission—a coalition of
leading authors, activists, scholars, and professionals—The People's Business
is a vital, clearheaded plan for strengthening individual rights, transforming
corporations into engines of public prosperity, and creating a sustainable,
life-respecting society where the people have the power.
Bolstered with
relevant history and examples, The People's Business is a lively book that will
appeal both to deeply-committed long-time activists looking for a coherent
approach in the struggle for corporate accountability as well as thoughtful
citizens everywhere who may be looking for immediate measures that serve as
effective means of corporate reform.
It is our hope
that The People's Business will serve as an important tool in educating people
about what they can do to challenge corporate power. But it will only be an
important tool if people actually read it. That's why we need your help in
spreading the word!
Why not pick
up your copy at a bookstore today if you haven't already?
MAKE YOUR
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