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Ethics hearing next for CFO?

At issue is Tom Gallagher's stock in insurance companies while he was insurance chief.

By JONI JAMES
Published July 29, 2006


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TALLAHASSEE - The Florida Ethics Commission found probable cause Friday that state Chief Financial Officer Tom Gallagher violated state law when he bought stock in four companies that either had state contracts or were regulated by his office.

The decision sends the matter to a public hearing and assures that Gallagher's campaign for the Republican nomination for governor will remain shadowed by the controversy of his stock purchases.

The St. Petersburg Times wrote in January that over several years Gallagher used an online stock brokerage account to attend to a personal investment portfolio that sometimes included stock in companies with matters pending before him as a state official.

During Friday's closed-door session, the Ethics Commission dismissed most allegations raised by the stock trading, but voted 6-2 to pursue Gallagher's ownership of stock in insurance companies while he was Florida's insurance commissioner in 2002.

"As the meeting wore on I was persuaded that you look at it like how would you tell a 7-year-old what was right," said Chairman Thomas Scarritt Jr. of Tampa, one of the commission's Democrats. "How much notice does a state official need that if he's regulating insurance he shouldn't be trading insurance stocks?"

Gallagher's campaign sought to paint Friday's developments as "great news" even as its legal advisors argued the commission erred.

Gallagher will not appeal the decision.

Campaign manager Brett Doster said he was pleased the commission dismissed roughly a half dozen other complaints that had alleged Gallagher's stock trading broke other laws, including charges that he may have used insider information obtained as a state official to time his stock buys.

The remaining complaints "are technical in nature," Doster said.

The commission accepted staff recommendations that Gallagher may have violated a state law that prohibits any state employee from having "contractual relationships" with companies that do business with or are regulated by the state.

Specifically, Gallagher will face further scrutiny of his 2002 investments in Penn Treaty American Corp. and Conseco Inc., both of which had subsidiaries that sold policies in Florida and therefore were regulated by the state insurance department Gallagher headed at the time.

The decision mirrored a 1991 commission opinion in which the state's bank regulator was told he couldn't own bank stocks.

The commission is political in composition and in fact the two members who voted against pursuing charges against Gallagher are contributors to his campaign. Three of the commission members who voted in favor of charges are contributors to Attorney General Charlie Crist, Gallagher's rival in the governor's race. One commissioner, Democrat Charles Lydecker of Daytona Beach, recused himself from the hearing because his company, Brown and Brown, is under investigation by both Crist and Gallagher's offices.

Crist's campaign had no comment about Friday's development, but one of his better known allies did:

"Name for me one governor of Florida in modern times, one major candidate who is running while facing probable cause findings under Florida ethics laws," said Mac Stipanovich, a Tallahassee lobbyist and Republican strategist.

The commission found probable cause for four violations of law, but voted to pursue only the two involving insurance companies.

The others, related to two other stocks Gallagher traded that had contracts with agencies overseen by the Cabinet on which Gallagher sits, were dropped. The companies are Nextel Communications and EMC Corp.

The commission's investigators found that the contracts were never discussed in Cabinet meetings and that there was no evidence Gallagher was personally involved in those contracts.

Gallagher's attorney Richard Coates said he was "dumbfounded" by the decision to pursue any of the matters because he said doing so ignores other rulings involving stock ownership previously made by the commission.

Coates, and Gallagher, have argued that the CFO's ownership in the companies was never great enough to threaten a conflict of interest, particularly when he was purchasing multinational companies with multiple subsidiaries.

Two of the commission members agreed. "I don't think Florida statutes prohibit Gallagher from owning minority interest in public companies over which he had no direct oversight," Christopher McRae of Tallahassee said. "I think it is wrong to read words into the statute that are simply not there."

The commission has previously concluded no conflict of interest exists if the official owns less than 1 percent of a company. Gallagher never reached close to that level in any company he traded.

But the revelations of Gallagher's investments raised questions, even with Gov. Jeb Bush, about whether the 1 percent rule is sufficient protection against conflicts of interest when dealing with investments in public companies. Gallagher could have owned tens of millions of dollars in stock in these companies and never have owned 1 percent of the company.

The commission accepted the 1 percent rationale Friday when it came to Gallagher's purchases in 2004 of AES Corp. stock at a time when its subsidiary was seeking permission to lay an underwater pipeline off Broward County's coast. Gallagher, along with Bush, Crist and Agriculture Commissioner Charles Bronson granted the permission.

Also dismissed were complaints from a Lake City airplane mechanic who alleged Gallagher had misused his office to intervene in a business dispute he had with a Gallagher friend.

The commission also dismissed complaints about Gallagher's short-term investments in AirTran airline, saying he had no significant role in its contract to provide state employee business travel; in Brown and Brown insurance agency because it wasn't regulated by Gallagher's office; and St. Joe Co., because its only connection to Gallagher's agency was its receipt of a disbursement from a worker's compensation-related trust fund.

The commission did not consider, however, a Cabinet vote in 2005 in which Gallagher agreed to prioritize some St. Joe properties for purchase by the state for conservation land.

Normally, the commission's decision, reached in a private meeting as allowed by state law, wouldn't have been made public until Wednesday. But Gallagher's campaign waived confidentiality after the commission's votes in the 70-minute hearing.

Gallagher, contacted at a Hillsborough County fundraiser Friday night by a Times reporter, declined to comment.

His campaign released a statement earlier in the day: "I'm pleased that the Commission's investigation confirmed what I have said all along: that I never misused my office and that I never gave preferential treatment to any company."

Staff writer Bill Coats contributed to this story. Joni James can be reached at (850)224-7263 or jjames@sptimes.com

WHAT THE LAW SAYS:

The state law Gallagher is alleged to have violated is Florida Statute 112.3137 which reads in part:

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP: No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee ..."

What Happens Next

Wednesday the Ethics Commission will release formal findings. A public hearing may be ordered, but Gallagher could negotiate a settlement first.

An administrative law judge would conduct the hearing and recommend penalties, if warranted. The commission must approve or reject such penalties. The entire process can take several months.

[Last modified July 29, 2006, 02:04:29]


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