November 15, 1993
DO-93-031
MEMORANDUM
TO: Designated Agency Ethics Officials,
General Counsels and Inspectors General
FROM: Stephen D. Potts
Director
SUBJECT: Recent Settlements of Civil Penalty Actions
Brought Under 18 U.S.C. § 216(b)
Two recent civil penalty cases brought by the U.S. Department
of Justice pursuant to 18 U.S.C. § 216(b) were settled with the
defendant in each case making a payment of $5,000 to the United
States Treasurer. Because of the significance of these precedent
setting cases under the new authority of Title IV of the Ethics
Reform Act of 1989 and because the cases might not otherwise be
readily available to the ethics community, we are providing a short
summary and a verbatim reprint of the factual stipulation by the
parties in each case. Please note that in each of these cases the
subject did not admit to any wrongdoing. However, the cases are an
indication of the Department's interpretation of the statutes
involved.
In United States v. Schnabel, Civil Action No. 93-1290
(D.D.C., June 24, 1993), the complaint alleged a violation of 18
U.S.C. § 205 and sought civil penalties pursuant to 18 U.S.C. §
216(b). The answer filed by the defendant denied liability and
requested that the complaint be dismissed. Under the terms of the
Settlement Agreement and Stipulation of Facts, the defendant agreed
to make a lump sum payment of $5,000 payable to the United States
Treasurer. Pursuant to agreement of the parties, the complaint was
dismissed with prejudice. According to the stipulated facts, the
matter involved a telephone call and the transmittal of a letter by
the defendant, who was then the Deputy Secretary of the Department
of Commerce, to the Deputy Secretary of the Department of Veterans
Affairs.
In United States v. Seger, Civil Action No. 93-1700 (D.D.C.,
August 17, 1993), the complaint alleged a violation of 18 U.S.C. §
207(c) and sought civil penalties pursuant to 18 U.S.C. § 216(b).
The answer filed by the defendant denied liability and requested
that judgment be entered in her favor. Under the terms of the
Settlement Agreement and Stipulation of Facts, the defendant agreed
to make a lump sum payment of $5,000 payable to the United States
Treasurer. Pursuant to agreement of the parties, the complaint was
dismissed with prejudice. According to the stipulated facts, the
matter involved a meeting which the defendant, a former member of
the Board of Governors, arranged for and attended at the Federal
Reserve within one year of her resignation.
Attachments
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United States v. Schnabel
Civil Action No. 93-1290 (D.D.C., June 24, 1993)
Factual Stipulation
"Rockwell Schnabel was confirmed by the Senate as Deputy
Secretary, United States Department of Commerce, on March 21, 1991.
Before that, Mr. Schnabel served as Under Secretary for Travel and
Tourism at the Department of Commerce.
"In the winter of 1991, Mr. Schnabel and Bruce Del Mar, owner
and president of Del Mar Avionics and Mr. Schnabel's father-in-law,
discussed difficulties Del Mar Avionics claimed it was having in
the administration of its contract with the Department of Veterans
Affairs ("VA"). Del Mar Avionics is a California-based
manufacturer of surgical and medical instruments, selling goods to
the VA and to private concerns. Mr. Schnabel had no financial
interest in Del Mar Avionics during the period in question. Del
Mar Avionics had business dealings with VA for approximately 20
years, but had recently experienced difficulty in adding a new
version of a product to an existing federal supply contract. The
federal supply contract is a mechanism for providing, at
prenegotiated prices, goods and services required by federal
departments and agencies.
"On December 31, 1991, Mr. Del Mar sent a letter on Del Mar
Avionics' letterhead to the Commerce Department, to the attention
of Mr. Schnabel. In the letter, Mr. Del Mar explained the delays
experienced in modification of the supply contract and asked for
the `Department's intervention with the Department of Veterans
Affairs on our behalf concerning this matter.'
"At the same time the letter was sent by Mr. Del Mar to Mr.
Schnabel, a letter was sent from Jack Hammond, Senior Vice
President of Del Mar Avionics, to the contracting officer at the VA
in charge of Del Mar Avionics' contract. Mr. Hammond's letter
noted that a letter seeking assistance was sent to the office of
the Deputy Secretary of Commerce, and enclosed a copy of Mr. Del
Mar's letter to Commerce.
"After receiving Mr. Del Mar's letter, on or about January 9,
1992, Mr. Schnabel called Anthony Principi, the Deputy Secretary of
the VA, who Mr. Schnabel knew in primarily an official capacity.
Mr. Schnabel informed Mr. Principi that Del Mar Avionics was owned
by his father-in-law, and inquired of Mr. Principi if it would be
appropriate for him to forward a copy of Del Mar Avionics' letter
to Commerce to Mr. Principi. Mr. Principi, whom Mr. Schnabel knew
to be an attorney, indicated that there was nothing inappropriate
with the request, and a copy of the letter was then sent to Mr.
Principi.
"Mr. Schnabel did not request Mr. Principi to take any
specific action with respect to Del Mar Avionics' contract with the
VA. Mr. Principi did make inquiries within the VA about the
contract, and directed his undersecretary to look into the matter.
At the time, the VA was experiencing a backlog and manpower
problems. As a result of Mr. Principi's actions, the contracting
officers gave the Del Mar Avionics' contract priority over other
pending contracts. The desired contract change would have,
however, occurred in the normal course of business. The updated
product was added to Del Mar Avionics' contract on February 4,
1992."
_____________________________________________________________________
United States v. Seger
Civil Action No. 93-1700 (D.D.C., August 17, 1993)
Factual Stipulation
"Dr. Martha R. Seger, a financial economist, university
professor, and former Commissioner of Financial Institutions for
the State of Michigan, was appointed to the Board of Governors of
the Federal Reserve System ("Fed") in July 1984. In January 1991,
she publicly announced that she would be resigning from the Board
to pursue other interests and to tend to personal and family
responsibilities. At the time of her resignation, effective March
11, 1991, Dr. Seger was the senior member of the Board of
Governors.
"Following her resignation from the Fed, Dr. Seger was elected
to the boards of directors of a number of public corporations,
including the Kroger Company ("the Company"), none of which were
regulated by the Fed.
"In July 1991, the Fed and other bank regulatory agencies
requested public comment on guidelines issued by the agencies
requiring reporting by banks of certain highly leveraged
transactions ("HLT's"). Pursuant to the definition used by
regulators, an HLT was a buy-out, acquisition, or restructuring
that resulted in a high liabilities-to-assets leverage ratio for
the borrower. Banks were required to report HLTs as part of their
quarterly statistical call reports.
"The Company submitted a written comment to the Fed on the HLT
guidelines discussing the effect of the guidelines in curtailing
the availability of domestic bank financing to companies with a
high liabilities-to-assets leverage ratio, such as itself, and
requesting modification of the guidelines.
"In addition to submitting a written comment, Company officers
met with John P. LaWare, a member of the Fed's Board of Governors,
on August 27, 1991, in his office. Dr. Seger had suggested LaWare
as a person at the Fed with whom the Company might wish to meet to
discuss the HLT issue. Dr. Seger arranged the meeting by
telephoning LaWare's secretary to schedule it.
"Dr. Seger attended the meeting, along with the Company's
Chief Executive Officer and Chief Financial Officer. After Dr.
Seger introduced them, the Company's officers made a presentation
on the effects of the HLT guidelines on the Company and similarly
situated companies. Dr. Seger said nothing during this substantive
part of the meeting. The meeting, which occurred during the public
comment period, lasted approximately 45 minutes.
"The Company paid Dr. Seger $1,500, a sum equivalent to the
normal director's fee for attendance at a board meeting, and
expenses. The letter transmitting the check stated that the
Company's policy on directors' compensation was to pay the
equivalent of a board meeting fee when extraordinary requests were
made of directors' time. Dr. Seger had not requested the payment."