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Probed lobbyist had stake in firms
Question of the Day
Superlobbyist Paul Magliocchetti, the focus of a federal criminal investigation, held an ownership interest in three small, privately held companies that his lobbying firm had helped obtain millions of federal tax dollars in congressional earmarks.
In effect, he was trying to profit twice from his firm’s success in getting members of Congress to set aside, or earmark, tax money for his clients in annual appropriations bills by collecting hefty lobbying fees from the companies and, at the same time, hoping to make money by investing in their stock.
While it is not illegal for a lobbyist to hold an ownership interest in a company for which he is lobbying, some watchdog officials, including Craig Holman of Public Citizen, said it is not typical. Mr. Holman describes Mr. Magliocchetti as “benefiting on both ends of the deal.”
“He is paid to lobby for earmarks and he is moving earmarks into a company in which he has a personal stake. This raises obvious conflict of interest concerns,” Mr. Holman said. “The money involved is tax dollars, which raises the bar on ethical behavior. Are the earmarks contributing to the public good, or are they just moving money into the lobbyist’s pocket?”
Spokesmen for two of the members of Congress who sponsored the earmarks said they were not aware of Mr. Magliocchetti’s ownership interests.
Federal investigators probing Mr. Magliocchetti’s lobbying activities and his congressional fundraising want to know whether he improperly reimbursed those who made donations to his favored candidates and whether he exchanged donations with members of Congress in return for earmarks for his clients.
His office and home were raided by investigators in the ongoing probe in November 2008. Mr. Magliocchetti’s firm, the PMA Group, is out of business. His attorney, William E. Lawler III, declined on Thursday to comment.
The three companies in which Mr. Magliocchetti invested nearly $670,000 received more than $35 million in earmarks while PMA was their lobbyist, records show. In turn, the companies paid PMA more than $2.3 million in lobbying fees, according to federal lobbying records.
The companies were Triosyn, a Vermont firm that makes anti-microbial masks; Cryptek Secure Communications, a Virginia company that built security products to help safeguard sensitive information; and Adsil Inc., a Florida firm that manufactures and sells anti-corrosion coatings.
As privately held companies, their stock was not publicly traded. Investors generally hope to make big profits when the firm is either sold or when it goes public.
According to a March 2004 filing in his divorce case, Mr. Magliocchetti listed the value of the stocks he held in the three companies at $725,741. But two have since plummeted: Adsil is now worth only pennies a share and his investment in Cryptek was apparently wiped out in the company’s bankruptcy last year.
Since the privately traded companies did not have to file periodic reports with the U.S. Securities and Exchange Commission (SEC), it is not clear how much money, if any, Mr. Magliocchetti may have made from dividends or stock sales.
In 2000, Adsil hired PMA to help win federal contracts and earmarks, paying the firm $140,000 in lobbying fees between 2000 and the end of 2002. In 2001, Rep. Ander Crenshaw, Florida Republican, put a $1 million earmark in the 2002 appropriations bill for Adsil on a U.S. Coast Guard contract. Adsil executives donated $5,000 to Mr. Crenshaw’s campaign funds, according to federal election records.
Crenshaw spokeswoman Barbara J. Riley said the congressman submitted Adsil’s request for funding after inheriting it from his predecessor. She said Adsils anti-corrosive technology did not ultimately pass strict Coast Guard standards and “Crenshaw submitted no further appropriations requests on the firms behalf.”
She said Mr. Crenshaw had no knowledge of Mr. Magliocchetti’s ownership stake in Adsil.
The firm is no longer using lobbyists to seek federal earmarks and contracts, said Jim Gibson, Adsil’s president and chief executive officer. He said the company is concentrating its business on the private sector.
In his divorce filing, Mr. Magliocchetti said he owned 300,000 shares of Adsil worth $150,000 or 50 cents a share - the same price he paid for them. Today, his shares are worth about a penny apiece, Mr. Gibson said.
Other Adsil shareholders were Mr. Magliocchetti’s daughter, Jennifer; his son, Mark, and his wife, Leslie, along with the lobbying firm, Mr. Gibson said. He said he could not discuss the amount of shares his stockholders held because it is a privately traded company.
Mr. Magliocchetti owned 480,956 shares of Cryptek worth $423,241 as of Jan. 31, 2004, according to his divorce filing. He bought them for $1 a share, according to the divorce court records.
Cryptek, formed in 1996, was one of PMA’s earliest and best-paying clients, signing up in April 1999 and staying with it to the end of January 2009, shortly before the lobbying firm closed its doors in the wake of the federal probe. Cryptek paid PMA nearly $1.8 million during that 10-year span and received a number of earmarks.
In 2004, Cryptek paid PMA $240,000 to lobby Congress and received four earmarks for $19.1 million in the 2005 defense appropriations bill, according to an Office of Management and Budget (OMB) database.
While the OMB did not identify which member of Congress obtained those earmarks, records show that three of them originated in the House and one in the Senate. Mr. Magliocchetti had close ties to several powerful members of the House Appropriations defense subcommittee, including its current chairman, Rep. John P. Murtha, Pennsylvania Democrat.
Mr. Magliocchetti worked with Mr. Murtha on the subcommittee in the 1980s, and PMA employees were one of Mr. Murtha’s largest groups of campaign donors.
Rep. Peter J. Visclosky, Indiana Democrat and another member of the defense subcommittee, secured a $1.6 million earmark for Cryptek in fiscal 2008, records show. Cryptek’s offices are more than 660 miles from Mr. Visclosky’s district.
The federal grand jury investigating Mr. Magliocchetti subpoenaed records from Mr. Visclosky’s congressional and campaign offices. PMA employees are Mr. Visclosky’s largest group of campaign donors and Mr. Visclosky has obtained dozens of earmarks for PMA clients.
Cryptek employees and the company’s political action committee have contributed $122,270 to federal candidates since 1997, according to disclosure records. They gave $31,849 in campaign donations to Mr. Visclosky, including $7,300 in 2007 when the House was putting together its 2008 appropriations bill.
Mr. Murtha got $24,600 from Cryptek employees.
Neither Mr. Murtha nor Mr. Visclosky responded to requests for a comment for this article. Both men have publicly denied any wrongdoing.
When Cryptek filed for bankruptcy protection in November 2008, PMA submitted a claim saying it was owed $117,500 in unpaid fees. When Cryptek couldn’t get financing to reorganize, it was forced into liquidation in March.
In July, API Cryptek Inc., a wholly owned subsidiary of API Technology Corp., acquired substantially all of Cryptek’s assets for $5 million through the purchase of a bank’s interest. The bankruptcy apparently wiped out the interests of stockholders like Mr. Magliocchetti and his son, Mark, who also was listed in court records as a shareholder.
API Technology CEO Stephen Pudles said his firm had nothing to do with the prior owners and bought the assets from the bank.
Triosyn developed the technology for its anti-microbial masks through a series of earmarks sponsored by Sen. Patrick J. Leahy, Vermont Democrat and a senior member of the Senate Appropriations Committee.
Mr. Leahy, also a member of the defense appropriations subcommittee, sponsored at least $13.2 million in earmarks for Triosyn between 2000 and the end of 2004, during the period PMA was lobbying for the firm. PMA was paid $400,000 in fees and Mr. Magliocchetti bought 61,000 shares of Triosyn for $38,430, records show.
The Leahy earmarks helped Montreal-based Triosyn become the first biotechnology firm to open a manufacturing facility in Vermont, according to a 2002 press release from the senator’s office.
The company is on track to produce at least 2 million masks at its Williston, Vt., facility, and Triosyn Corp. is now part of Safe Life Corp.
Triosyn employees donated $13,100 to Mr. Leahy while Mr. Magliocchetti and people associated with PMA gave the senator another $6,500 in 2004.
Leahy spokesman David Carle said the senator’s office worked directly with Triosyn and PMA did not bring the company to them. He said the senator’s office had no knowledge of any stake Mr. Magliocchetti may have had in Triosyn.
Mr. Magliocchetti is still a Triosyn shareholder, said Safe Life spokeswoman Christie Huff. She said Mr. Magliocchetti bought his shares in 2003 through a private purchase from a minority shareholder and that the transaction was approved by the Triosyn board before it was processed.
Ms. Huff said no executive, employee or board member had stock transactions with Mr. Magliocchetti, adding that he paid the seller the fair market value what he and other investors had earlier paid for the shares.
Mr. Magliocchetti reported in his divorce filing that his 61,000 shares of Triosyn were worth $152,500 as of Jan. 31, 2004, nearly four times the $38,430 he originally paid for them. It is not clear what the shares are currently worth.
Triosyn stopped using PMA at the end of 2004. The firm has continued to get earmarks from Mr. Leahy.
Mr. Holman noted that Mr. Magliocchetti was hired to secure earmarks and then invested in the same firms.
“Clearly, he expected the earmarks to pay off for the startup company,” he said.
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