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July 29, 1997




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.


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