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Saturday, January 29, 2011

Wheeler stumbles in ethics probe

This is disturbing. Oregon Treasurer Ted Wheeler is whining about how much money it's costing to investigate his "masters of the universe" investment gurus over playing fast and loose with expense accounts and conflicts of interest. They should be above the ethics laws, according to Ted, as long as their own department let them get away with any stunts they were pulling.

Part of the problem is that Wheeler has hired a Goldschmidt crony law firm, and some other outside lawyers, to the tune of $91,000 and counting, to defend the accused double-dippers.

Wheeler is barking up the wrong tree. The solution here is not to exempt anybody from the ethics laws. The solution is to have the state not have to hire the outside legal help. Maybe when you play games with your state employee expense account, you should have to pay your own lawyer to defend yourself. That's what appears to be happening to the public meetings law miscreants in Lane County -- the same should go for Wheeler's people and their freebies and credit card maneuvers.

Or maybe accused public employees should get a bright, young, low-priced public defender assigned to help them.

Another appealing possibility is to get half of the Treasury Department's "masters of the universe" off the state payroll altogether. The fees that the state already pays to outside investment advisors are no doubt high enough that it should not need eight or more overpaid in-house people (with monster pensions, no doubt) to do analysis and monitoring of investments (and potentially graft-taking, legal or otherwise).

In any event, our high opinion of Wheeler just went down a notch.

Comments (38)

Jack - anyone is welcome to reach their own conclusions, but you've completely misrepresented my position. I have never said that anyone should be above ethics laws, in fact, I've said the opposite, and I have proposed a process to ensure that employees are, in fact, following ethics laws when they follow agency policy. What I said in my letter to the governor (which I hope you will link to) is that 1) agency policies should be ensured to be consistent with ethics law and there should be a process to ensure that this is the case, and 2) employees who can demonstrate that they followed those policies should then be presumed to be following ethics laws without concern about being subject to a costly and lengthy ethics investigation. Can somebody please name a private sector company that investigates its own employees AFTER they have demonstrated that they follow company policy? How does that make good financial sense?

Whatever the rest of the state agencies decide to do, I'm asking the Ethics Commission to review our new policies to ensure that they are consistent with state law.

I'm open to other views, but please read the actual letter, first. Look forward to people's comments.

Thanks Jack for this forum. I appreciate it very much.

There needs to be a uniform set of state laws that apply to all public employees in the state, and nothing in any agency's "policies" should give any employee the right to deviate from those standards. Apparently we agree on that.

But I don't think I understand what you're proposing. If you think you're going to save lawyer money having each agency's every "policy" constantly reviewed for compliance with state ethics law, you're not thinking this through. You'd be paying a lawyer that $100,000 every year.

Another possibility that comes to mind is that every agency should have to kick into a defense fund, so that when employees like yours get one agency in trouble, it isn't the only one paying Stan Long and the boys to straighten things out.

Oregon's ethics laws are porous, and the resources appropriated to enforce them are embarrassingly small. If anything, there need to be more enforcement cases, not fewer.

Ted, you really ought kick a few of the "masters of the universe" in the butt for what they did. And think about making do with 50% fewer of them.

It all kind of makes me wonder what the investigators are thinking, where the amount in question, for the 3 remaining employees, is a total of $428. Sounds like some egos or reputations might be at risk on the prosecutorial side. The money has been paid back and the travel rules have apparently been overhauled. Doesn't the ethics commission have anything better to do with it's time. NO private company would continue to pursue such matters where the legal expense so greatly exceeded the cost of the infraction. The employees would either get fired, or be told to go back to work and not let it happen again. End of story. Now whether we need as many investment overseers is a different question, but I suspect diversity of experience and opinion is the rationale, where so much money is at stake.

Even though I am still worried about financial hanky panky among those with sinecure, Ted Wheeler gets some big bonus points for responding and responding in a pretty classy way. If this Treasurer thing doesn't work out, Ted should run a seminar called "How to be a politician without being an a***ole." I'd donate money to Dave Hunt's "campaign fund" to pay for the seminar.

what the investigators are thinking

What they were thinking originally thinking, and justifiably so, was accepting substantial, illegal gratuities. Guess they've been talked down, but they want these birds to take a hit for something. Which based on media accounts, I would say they richly deserve.

And if "it's only $400," why don't the "masters of the universe" just admit wrongdoing?

Jack I could be way off base on this but I don't think the policies need to be "constantly reviewed." I only think elements of the policy need to be reviewed when they are changed. We just completed a wholesale reform of our policies in Treasury, which would require some intense vetting, but from here on the Ethics Commission would only need to review "tweaks" to that policy. At least that's what I envision.

Is there an "only $400" standard for the clerks at the DMV if they steal from the cash drawer?

I only think elements of the policy need to be reviewed when they are changed.

I just don't see that as being the more efficient way out when there are so many different agencies, each with their own policies.

In any event, whatever happens going forward, these three birds were busted under the existing system, and the matter ought to be pursued under the existing system. Any suggestion that this particular investigation ought to be tampered with because of costs is, frankly, disgusting.

I think there is a difference in intent between stealing $400 from a cash drawer, and failing to properly itemize an actual travel expense. The first is a firing offense. The latter could simply be a mistake, remedied by restitution and increased diligence in the future. In either case there's something wrong with a system (regardless of who pays) that spends $100,000+ on lawyers to get it resolved.

failing to properly itemize an actual travel expense

Actually, the offenses reportedly included billing the state for "reimbursement" of expenses that had already been paid for by third parties. Some NBA referees did that a while back; they lost their jobs for failing to report the extra dough on their tax returns.

It would be interesting to see what these guys did on their tax returns.

The "masters of the universe" think they're better than everybody else. It's critically important that they find out that they're not above the law.

Why taxpayers pay to defend them is a complete mystery. But the answer is not to let them slide. I've suggested several other solutions.

"these three birds were busted under the existing system, and the matter ought to be pursued under the existing system. Any suggestion that this particular investigation ought to be tampered with because of costs is, frankly, disgusting."

Jack - nobody is suggesting either, certainly not me.

My read of this is that these state employees had their travel expenses paid by the investment companies they were supposedly supervising with - pretty bad practice.

Worse, then they submitted reimbursement requests as if *they* had paid the expenses, got the money from the state, and kept it.

I do not trust people who would do that to handle small amounts of money, much less billions. The fact that our state treasurer apparently does trust them is enough to make me doubt his judgment more generally.

That he now wants to pay to defend these employees is even more troubling. His loyalty is supposed to be to the citizens, not his colleagues.

As for his comments about giving employees immunity if the followed state rules: the Oregon Government Ethics Board - which is currently investigating his employees - offers exactly this service, and offers immunity to those who follow it opinions.

You can see past opinions at http://www.oregon.gov/OGEC/advisory_opinions.shtml

These employees (or the Treasurer's Office) could have asked GEC Director Ron Bersin for an opinion before submitting their reimbursement requests. They did not. Now they are under investigation by the GEC. They should be.

Treasurer Wheeler, do you not understand how this process is supposed to work?

The real crime is what they are permitted to accept without recriminations.

Ted Wheeler, your second point,"2)employees who can demonstrate that they followed those policies should then be presumed to be following ethic laws..." is disturbing, for me. "Presumed" is a big, expanding word.

If I were a state employee who is questioned about a possible ethics, or more violation, does that mean I, or an in-state attorney, or my own attorney just merely has to write a letter stating "I didn't do it." with some follow-up? Then that solves all?

At sometime, as examples in your own department of possible ethics or legal violations, issues need to be researched with follow-up. You don't just take the words of the accused party.

Ted Wheeler - On the immunity question.

Here is the exact text from the GEC website:

An Advisory Opinion is issued by the Oregon Government Ethics Commission pursuant to ORS 171.776 and ORS 244.280. A public official or business with which a public official is associated shall not be liable under Lobby Regulation law or Oregon Government Ethic law for any action or transaction carried out in accordance with this opinion. The opinion is limited to the facts set forth in the request. (opinion number contains an "A")

The GEC has an extensive outreach effort for state employees. My guess is your analysts didn't ask for an Advisory Opinion because they figured it would come back telling them these sorts of trips were not allowed - much less double billing the expenses.

Like good analysts they did the expected value calculation, figured the probability of getting caught was low, and factored in a guess that the agency would cover them even if they did get caught.

Totally rational, at least a priori. Not very ethical though.

"My guess is your analysts didn't ask for an Advisory Opinion because they figured it would come back telling them these sorts of trips were not allowed - much less double billing the expenses."

Random - I don't know what the case was prior to my taking over as State Treasurer. What I do know is that the Treasury's policies should be consistent with State Law. Period. I am seeking to ensure that is the case with the reforms I have made to our travel practices and have already made that request of the Ethics Commission. I am told that this is the first time any state agency has asked for an entire policy to be reviewed (as opposed to just a specific expenditure, per the statute you cite above...)

If it is found that previous Treasury policy was in violation of state laws, that raises the question in my mind of how any agency could adopt mandated policies for its employees that are contrary to state law? (All Treasury policies were reviewed by the Department of Justice, after all.) And how many state employees are following the mandated rules, as set forth by their agencies, not realizing that they are potentially in violation of the law? Why would we want to let it get to this point when we could clearly avoid it in the first place through a smarter, less costly process?

Haven't you heard of the "cuttin a fat hog" exemption to expense account irregularities. It only applies to MOUs.

You're a class act, Mr. Wheeler.

May I suggest again that we are batting the treatment smart Moms give their two year olds (Would you like a carrot or an apple? To keep kiddo from thinking about a cookie.)

Once again, there is ZERO evidence ... And this is one of the most intensely analyzed questions in all of human history ... For the proposition that active management of funds adds value. None. Zip. Nada.

So the question is ... Or should be, if we werent so eager to be scammed ... Why do we have investment advisors at all? If these guys had any real insight, they would not be screwing around investIng Oregon's money, they'd be making themselves rich.

There entire JOB is a scam, not just the shady expense reporting that, whether permitted by rules or not, says that the person who does it has the finely tuned ethical radar of a cinderblock. The entire departmenT should be closed down and the perps and their enablers invited to go take their investment sagacity down the road where they can bilk some other rubes for a while. Keep one sharp battle-ax clerk to handle transfers Of funds to and from the index funds where the lowest coats are, usually Vanguard. If there was ever an activity where we Have the data to support abolishing most of the function and privatizing the rest, it is in state pension and college fund investing.

Anyone who insists that they can reliably produce value added to what an index fund can do should be invited to produce their ten year trading history results, including costs of trading.

Maybe it's not what those employees did so much as what they know about lots of other, bigger things that others (including themselves) have been and are involved in, that higher ups feel a need to let it pass.

Reminds me of aspects of the Franke case....

First, kudos to Mr. Wheeler for showing up on this blog and responding to many of the points raised. Whether each of us agrees with his responses upon any one or more points, its refreshing to see an an elected official comfortable enough in hius own skin to respond in an unscripted fashion without vetting his responses through a half dozen PR flacks, staffers and spin doctors.

Thank you for that.

On the merits of this debate, I am troubled by the concept advanced by Mr. Wheeler that "agency policy" in a third party agency somehow trumps the act of the Legislature in setting up the ethics laws and the Ethiics Commission.

I am not aware of the precise place in the Oregon Constitution which grants agency heads, even agency heads who are sttae wide elected officials, the authority to ignore state laws that have been enacted by the Legislature, signed by a Governor, and which have been on the books as long as the ethics statutes have.
IIRC it was several of Mr. Wheeler's predecessors, who established the regime in which Treasury "policy" ignored, and was contrary to, actual statutory provisions. I don't think that Mr. Wheeler established those agency policies, and I don't fault him for those.

But I'm not happy about Mr. Wheeler's apparent willingness to defend the practice of an agency unilaterally deciding that its "policies" should over ride statutes.

That is just bad bad bad public policy, and really poor governing.

Further, there is no way in my mind that an agency employee should receive any legal fees for the defense of a claim like that being made by the ethics folks. That decision is on Mr. Wheeler, and its a bad decision.

Maybe the ethics statutes need some tinkering. I personally don't think so, but thats an item for a discussion.

But having agency policies that purport to override / superceede state laws, and using taxpayer dollars to pay anything for any legal representation for treasury folks being investigated by another state agency for alleged violation of state lw directly connected to the performance of their jobs is ridiculous.

Yes, thanks Mr. Wheeler for answering questions here. I don't like your decision on this, but I appreciate the fact you are willing to try and defend it to your constituents.

I am with George , the State should eliminate these positions. They invite the holders to commit the very violations they appear to have enjoyed.

I like the thinking of this "Random Professor."

I'll give it one last shot, then I'll call it a day (plus I'm on the hook for making dinner tonight..)

Nonny - No agency should trump statute or ethics law in Oregon. It is already illegal for agencies to do that. Our agency, and all others, must abide by all statutes and ethics laws. The question boils down to this in my mind: if you are employed by the state and mandated to follow a policy, shouldn't you have some assurance that what you are being asked to do is consistent with the law, and that there was some process in place to protect you by assuring that was the case? As a taxpayer, why woulnd't you want that assurance? I may be in the minority here...

Thanks for the great comments I appreciated this discussion so far.

Thanks dMan. FWIW I agree with George and billb, and every serious study of stock investing ever done.

People cannot consistently pick winners in the stock market, and people who say they can are not to be trusted.

And if anyone could do this, they sure as hell would not be working for the state of Oregon for $250,000 a year plus whatever they can skim off their expense account!

I agree with GAS, lw, Tee, Mojo, Nonny, Jack and Random Prof. - especially GAS.


Wheeler should lead - if he knows right from wrong - the rest is just obfuscation, waste and more obfuscation.

We can no longer (we never could, really) afford the interminable process process as a substitute for leadership.

My experience with graft would tell me that it would not end with outside investment advisers. Whoever selects the final "purchase" in any private or government enterprise is subject to this temptation. You would be amazed at the lengths some people go to for a few extra bucks on the side. Or, maybe you wouldn't. There needs to be a paper trail for all purchases and decision making no matter who is selecting the investments. Cash is impossible to track, but that is a risk also.

Let's not overstate what happened. From the story linked above:
". The answer is complicated by an agency policy that allowed employees to claim per diem reimbursement for free meals when an outside investment manager was paying, but not when Treasury was paying."

Many public and private entities behave this way. My own institution allows me to claim a flat $55 per diem when I travel, without the need to provide receipts. The federal government also has a per day travel allotment.

In reality, sometimes I finish ahead, sometimes I finish behind. The reason for the policy is so that you don't have to waste the time and expense to process individual receipts, so instead the provide a per diem.

This is exactly what is going on here.

The Ethics Board is not *saying* that these individuals violated state ethics guidelines (hence Jack's claim that Wheeler wants his employees to be able to ignore the guidelines is false); the board is *investigating* whether they violated.

Wheeler's response is that if his departments per diem travel guidelines violated state ethics rules, they should be reviewed. But if an employee, in good faith, followed departmental policy, and that policy is later found to be in violation of state ethics rules, then the rules should be changed. You should not penalize the individuals, who were only following the rules.

If we decriminalize or eliminate all laws we will not waste any money with the pesky lawyers or annual legislative junkets. Let justice be metered out swiftly by the populace and close the jails and courthouses. I still wonder why the state budget projections cost taxpayers money. Meteorologists could guess at a reduced rate.

As a taxpayer, I am more concerned with the inefficiency of spending six figures to investigate three figures.

Whether the positions are necessary is a separate argument, but it's impossible to justify the negative ROI on this public "investment."

Yeah, because no investigation that started with three figures ever wound up uncovering wrongdoing in the millions, right?

Try reading Cliff Stolls book The CooKoo's Nest sometime ... A guy in the US pulls a string when an accounting mismatch oF a few cents generated by a network accounting program bugs him, and winds up unravelling a Stasi spying operation.

Maybe after he gets done here he can start loooking at Cylvia. I already see the spin maching at the O is working overtime to exculpate her.

This may constitute flogging a dead horse, but part of the problem in this arena probably stems from the law itself (and not necessarily how Treasury policies may have interpreted them).

The state law defining "gift" is in subsection (6) of ORS 244.020. The ultimate question is who, after reading this, really would know what's permissible and what's impermissible under the law. Treasury apparently made an effort to construe the law; the ethics commission has probably made its own interpretations.

Pasted below in detail is the relevant portion of Oregon law. Read as far as subsections (b)(H) and (I) to see what expenditures public officials generally and Treasury employees specifically are allowed to accept. (Subsections 6(L) and 6(M) are interesting too in trying to figure out what's legal and what's not. I'm not suggesting how any specific investigation should be resolved--only that resolution may not be as simple as it would seem to some that it should be.

(6)(a) “Gift” means something of economic value given to a public official, a candidate or a relative or member of the household of the public official or candidate:
(A) Without valuable consideration of equivalent value, including the full or partial forgiveness of indebtedness, which is not extended to others who are not public officials or candidates or the relatives or members of the household of public officials or candidates on the same terms and conditions; or
(B) For valuable consideration less than that required from others who are not public officials or candidates.
(b) “Gift” does not mean:
(A) Contributions as defined in ORS 260.005.
(B) Gifts from relatives or members of the household of the public official or candidate.
(C) An unsolicited token or award of appreciation in the form of a plaque, trophy, desk item, wall memento or similar item, with a resale value reasonably expected to be less than $25.
(D) Informational or program material, publications or subscriptions related to the recipient’s performance of official duties.
(E) Admission provided to or the cost of food or beverage consumed by a public official, or a member of the household or staff of the public official when accompanying the public official, at a reception, meal or meeting held by an organization when the public official represents state government as defined in ORS 174.111, a local government as defined in ORS 174.116 or a special government body as defined in ORS 174.117.
(F) Reasonable expenses paid by any unit of the federal government, a state or local government, a Native American tribe that is recognized by federal law or formally acknowledged by a state, a membership organization to which a public body as defined in ORS 174.109 pays membership dues or a not-for-profit corporation that is tax exempt under section 501(c)(3) of the Internal Revenue Code, for attendance at a convention, fact-finding mission or trip, conference or other meeting if the public official is scheduled to deliver a speech, make a presentation, participate on a panel or represent state government as defined in ORS 174.111, a local government as defined in ORS 174.116 or a special government body as defined in ORS 174.117.
(G) Contributions made to a legal expense trust fund established under ORS 244.209 for the benefit of the public official.
(H) Reasonable food, travel or lodging expenses provided to a public official, a relative of the public official accompanying the public official, a member of the household of the public official accompanying the public official or a staff member of the public official accompanying the public official, when the public official is representing state government as defined in ORS 174.111, a local government as defined in ORS 174.116 or a special government body as defined in ORS 174.117:
(i) On an officially sanctioned trade-promotion or fact-finding mission; or
(ii) In officially designated negotiations, or economic development activities, where receipt of the expenses is approved in advance.
(I) Food or beverage consumed by a public official acting in an official capacity:
(i) In association with the review, approval, execution of documents or closing of a borrowing, investment or other financial transaction, including any business agreement between state government as defined in ORS 174.111, a local government as defined in ORS 174.116 or a special government body as defined in ORS 174.117 and a private entity or public body as defined in ORS 174.109;
(ii) While engaged in due diligence research or presentations by the office of the State Treasurer related to an existing or proposed investment or borrowing; or
(iii) While engaged in a meeting of an advisory, governance or policy-making body of a corporation, partnership or other entity in which the office of the State Treasurer has invested moneys.
(J) Waiver or discount of registration expenses or materials provided to a public official or candidate at a continuing education event that the public official or candidate may attend to satisfy a professional licensing requirement.
(K) Expenses provided by one public official to another public official for travel inside this state to or from an event that bears a relationship to the receiving public official’s office and at which the official participates in an official capacity.
(L) Food or beverage consumed by a public official or candidate at a reception where the food or beverage is provided as an incidental part of the reception and no cost is placed on the food or beverage.
(M) Entertainment provided to a public official or candidate or a relative or member of the household of the public official or candidate that is incidental to the main purpose of another event.
(N) Entertainment provided to a public official or a relative or member of the household of the public official where the public official is acting in an official capacity while representing state government as defined in ORS 174.111, a local government as defined in ORS 174.116 or a special government body as defined in ORS 174.117 for a ceremonial purpose.
(O) Anything of economic value offered to or solicited or received by a public official or candidate, or a relative or member of the household of the public official or candidate:
(i) As part of the usual and customary practice of the person’s private business, or the person’s employment or position as a volunteer with a private business, corporation, partnership, proprietorship, firm, enterprise, franchise, association, organization, not-for-profit corporation or other legal entity operated for economic value; and
(ii) That bears no relationship to the public official’s or candidate’s holding of, or candidacy for, the official position or public office.
(P) Reasonable expenses paid to a public school employee for accompanying students on an educational trip.

Nice try, Bruce, but piffle, actually. People who work for the state in Salem at the peon level are regularly told that they cannot accepT so much as a discount on coffee if the discount is not universally aVailable to all comers. Period.

The only people who have to worry about the sludge you quoted are those looKing for loopholes around that clear, simple rule.

When the Mrs. Was a regulator, she would not allow industry folks to buy her a soda, much less a meal, much less a meal that they then intended to double-dip on, billing to the taxpayers AND to the people with a clear interest in state favors.

Anyone who says this is somehow a difficult call is someone whose ethics are themselves open to question.

Turns out that these particular birds are in Useless make-work jobs to start with, positions that should not even exIst. So we don't have to fire them for being ethically Braindead ... We simply have to notice that their job is Better done by a computer algorithm in an index fund, And boom, problem solved.

I don't know how Treasury staff interpret the no-gifts rules, but here are two interpretations I've experienced, as someone who occasionally tries to influence the government: (a) a county employee who didn't have change in the till when I wanted some copies of public records refused to accept the extra 10c for the office coffee fund, and (b) a city employee refused to let me buy him a $2 cup of coffee because I had a matter pending before the city at the time.

Most public employees act as Isaac suggests. My own personal example was when I refused to let my aunt(!) buy me lunch because she works for a contractor who does business with my public employer --- even though it was a different work group altogether.

Still, I'm sympathetic to Wheeler's point. If the Treasury Department's official rules of conduct violated the State's ethics rules, I'm not sure that the current investigation is the right one. Most of us assume the rules we are told to follow also comply with the State ethics laws -- which I don't think is an unreasonable assumption. It seems the real investigation should be into the higher-ups at Treasury (current or former) who wrote and adopted the rules, and the DOJ lawyers who reviewed them. There was an obvious failure in the process, but it seems to be a failure of policy/rule-making.

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