Donald C. Smaltz, Independent Counsel In re Espy, announced:
Smith Barney Inc., an international investment banking and securities
firm, paid $1,050,000 to the United States in settlement of a civil tort and conflict of
interest action brought today by the Office of Independent Counsel for giving a $2,200
Super Bowl ticket to Secretary of Agriculture Michael Espy in 1994. The gratuity was given
while Smith Barney's Public Power Group was seeking Secretary Espy's assistance to
convince the Department of the Treasury to reconsider its decision not to waive more than
$286 million in prepayment penalties on a $3.1 billion loan to Smith Barney's client,
Oglethorpe Power Corporation, a Georgia electric utility company.
In the first civil action for damages and civil penalties brought by
an Independent Counsel, Smith Barney is charged with participating in and procuring a
violation of Secretary Espy's fiduciary duty to the United States and interference with
his agency relationship with the United States Department of Agriculture and the Executive
Branch of the United States Government.
Mr. Smaltz stated:
That agents of a prominent securities firm would jeopardize the firm's
reputation and callously disregard the law by seeking the continued assistance of the
Secretary of Agriculture with a $2,200 gratuity is disgraceful!
Such conduct demonstrates an absolute disregard of the gratuity statutes
and precious little respect for the integrity of public officials.
Even in a securities firm with a comprehensive compliance program, a
managing director circumvented established firm procedures with little concern for the
consequences of these actions when a potential $3.1-billion deal was involved.
This office will continue to vigorously investigate and seek appropriate
sanctions to punish such acts.
In this case, Secretary Espy went outside of the Department of
Agriculture in support of Oglethorpe's loan refinancing proposal -- on several occasions
to the Secretary of the Treasury, once to the Director of the Office of Management and
Budget, and twice to the Vice President of the United States.
The Complaint alleges: Defendant Smith Barney, acting for its client,
Oglethorpe, purchased three tickets -- two for Secretary Espy -- to the January 30, 1994
Super Bowl in Atlanta, Georgia from a ticket scalper for $2,200 per ticket, and a total
cost of $6,600. When the principal of EOP Group, Inc., a lobbyist hired by Smith Barney
and Oglethorpe, was at the offices of Oglethorpe outside of Atlanta for a meeting with
Secretary Espy on the day before the football game, an officer of Oglethorpe gave the
lobbyist an envelope containing the Super Bowl tickets. Later that day, and following the
meeting between Secretary Espy and officers of Oglethorpe, the lobbyist gave Secretary
Espy one ticket to the football game.
According to the Complaint, Secretary Espy, at the Oglethorpe
meeting, discussed his support for Oglethorpe's proposal to secure from the Department of
the Treasury a waiver of $286 million in prepayment penalties due to the United States on
the loans that Oglethorpe received through a USDA program. Earlier that month, Treasury
rejected Oglethorpe's prepayment proposal as "a benefit [to] only one particular
group or class to the detriment of all taxpayers." Although Treasury rejected
Oglethorpe's proposal, Smith Barney and Oglethorpe continued through Secretary Espy, EOP,
and its own efforts to try to persuade Treasury to permit prepayment and refinancing of
the loans. After failing to persuade Secretary of the Treasury, Lloyd Bentsen, Secretary
Espy approached the Director of the Office of Management and Budget and, on two occasions,
the Vice President of the United States to intervene to persuade Treasury to reconsider.
The Complaint further alleged that a Managing Director at Smith
Barney, who was responsible for the Oglethorpe account, arranged for the purchase of the
Super Bowl ticket. The Managing Director used an Atlanta-based financial printer to
purchase the Super Bowl tickets. On or about March 1, 1994, the financial printer issued
an invoice to Smith Barney for "PROVIDING 3 SUPERBOWL TICKETS @$2,200.00 EACH."
The Managing Director did not process it for payment, and subsequently undertook to
conceal the purchase of and payment for the tickets by defendant Smith Barney. The
Managing Director sent written instructions to the financial printer to falsify the
invoice through the following direction: "CHANGE LANGUAGE ON INVOICE TO READ
PRINTING CONSULTATION FEE ON OGLETHORPE POWER PROJECT.'" Once the invoice made
no reference to Super Bowl tickets, the Managing Director submitted the false $6,600
invoice, which Smith Barney paid.
Smith Barney admitted certain allegations and did not contest that
the United States had evidence that would support the other allegations of the Complaint.
Although Smith Barney denied legal liability for the two Counts, it accepted
responsibility for the conduct of its employee as alleged in the Complaint.
In settling the civil action, Smith Barney also agreed to undertake
and implement certain additional compliance practices and procedures, including (1)
instructing outside counsel, in cooperation with Smith Barney's independent auditors, to
discuss with Smith Barney's internal audit staff the standards relating to the
identification, detection, and reporting of errors, irregularities, and possible illegal
acts, and to assess whether additional internal or external audit work should be
undertaken; (2) including in its annual training program for its Capital Markets Division,
for two years, an expanded presentation on the laws, regulations and policies prohibiting
the giving of gifts and gratuities to government officials, and requiring the preparation,
receipt and retention of accurate vendor and employee expense documentation; and (3)
requiring Smith Barney's Compliance Director to report annually for three years to the
Audit Committee of the Board of Directors and the full Board of Directors on the expanded
training provided. Smith Barney's $1,050,000 payment represented $1,000,000 in tort
damages for procuring and participating in Secretary Espy's charged breach of his
fiduciary duty to the United States and interference with his agency relationship with the
USDA and the Executive Branch, and $50,000 in civil penalties for unlawfully supplementing
the salary of a federal government official.
Smith Barney's Managing Director, Oglethorpe, EOP, EOP's principal,
and Alphonso Michael Espy were not charged in the Complaint.
A copy of the Complaint is available from the Office of Independent
Counsel upon request.
Smith Barney's payment brings to more than $4.5 million the criminal
fines, civil penalties and damages that the Independent Counsel has brought into the
United States Treasury from violations of law uncovered by this investigation.
The Independent Counsel's investigation is continuing.