- The Washington Times - Thursday, September 2, 2010

Top Amtrak officials declined to participate in an internal investigation until they were provided private lawyers on the government-owned company’s dime, an unusual request considering they were not even targets of the probe.

Records obtained through the Freedom of Information Act show that Amtrak Treasurer Dale Stein, General Counsel Eleanor Acheson and others requested their own attorneys before agreeing to sit for interviews with the agency’s own Office of Inspector General, which was looking into potential conflicts of interest in the rail service’s 2008 hiring of a consulting firm.

Officials steadfastly decline to say how much money Amtrak paid to hire outside counsel, insisting that such indemnification amounts are confidential.

While federal agencies have a policy, at times, of providing legal services for government employees in lawsuits or legal actions arising from their official duties, Amtrak’s decision is different because the executives were told before the interviews they weren’t targets in the investigation, records show.

Andrew C. Selden, vice president of law and policy at the United Rail Passenger Alliance, a nonprofit corporation that seeks to improve America’s passenger rail system, questioned the need to hire outside firms to represent employees if they were not targets.

“Employees are welcome to hire lawyers to represent them, but it doesn’t mean they’re entitled to indemnification,” he said in a phone interview.

Amtrak, which receives more than a billion dollars a year in federal funds, defended its responsiveness to the Office of Inspector General (OIG). In an e-mail, Amtrak spokesman Steve Kulm said all documents and every employee sought by the OIG were made available.

“The relationship between Amtrak and its OIG is very positive and constructive.”

He also called the indemnification policy of providing lawyers for employees a standard corporate policy, adding that those fees aren’t a matter of public record.

The interviews with the top executives stemmed from an inquiry into Amtrak’s hiring in early 2008 of a consulting firm, Babcock & Brown, for advice on a series of lease deals brokered a decade earlier. Amtrak also paid legal bills for Babcock & Brown in connection with the investigation, records show.

Under the leasing arrangements, Amtrak sold hundreds of rail cars to various investors, who in turn leased them back to Amtrak while taking tax breaks on their depreciation value. Transit agencies across the nation were engaged in similar deals as a way to raise cash, but the arrangements ran into trouble during the subprime mortgage meltdown in 2008 when insurers backing the deals, such as American International Group (AIG), saw their credit ratings downgraded, which in turn put Amtrak at risk of default.

Amtrak hired Babcock & Brown for advice on how to resolve the lease deals. But that hiring later came under scrutiny when officials learned the firm had previously been retained by two of the same banks involved in Amtrak lease deals.

When a Transportation Department official later asked if Amtrak was getting “clean, independent” advice, Mr. Stein, Amtrak’s treasurer, assured the official that “all was well,” the inspector general’s office found.

“OIG’s investigation concluded that Stein’s representation at that time may have been less than fully candid, based on incomplete fact validation and insufficient expertise to determine whether a conflict or other risk to Amtrak existed,” investigators later wrote in a 2009 report obtained by The Times.

Mr. Stein declined an interview request.

Mr. Kulm said there was nothing amiss in hiring Babcock & Brown, calling it “appropriate” and saying it “did not constitute a conflict of interest.” He said the firm’s selection and retention were “consistent with Amtrak’s policies and procedures” and the rail service “received appropriate, indeed, necessary and well-executed assistance from [Babcock], which contributed essentially to resolving the defeased lease transactions that [Babcock] worked on.”

William Campbell, Amtrak’s former chief financial officer, who is now running as a Republican for comptroller in Maryland, also was questioned about the leases. In a recent phone interview, he said he wasn’t as involved in the issue as Mr. Stein, but added that he was concerned about Amtrak’s debt.

Amtrak also provided outside legal services for Mr. Campbell, as well as another official whose name was redacted in documents provided to The Times, records show.

Keith McWalter, the Babcock & Brown official who worked on the Amtrak project, said the firm only “crunched numbers” for two of the investors in the lease deals in 1999 and 2000, but hadn’t done any work for the investors since. Amtrak hired Babcock & Brown for advice on the lease deals in 2008.

A draft report by a law firm hired by Amtrak’s law department concluded there was “little or no risk of a disqualifying conflict” in Amtrak’s hiring of Babcock & Brown. But the Inspector General’s Office concluded that using consultants who previously worked for two of the investors “put Amtrak at a greater business risk, which should not have been treated cavalierly by Amtrak management and should have been fully vetted prior to continuing the relationship with Babcock & Brown.”

In the summer of 2008, former Federal Railroad Administration chief Joseph Boardman, then a member of Amtrak’s board of directors and now its chief executive, expressed concern to Ms. Acheson that Babcock & Brown had a conflict of interest in that it had represented two of the investors in the original lease deals, records show.

Ultimately, Amtrak resolved the leases by terminating three deals and, in nine others, replacing the insurers. The total cost was nearly $100 million, according to records and interviews obtained by The Times.

The Inspector General’s Office noted that some have raised questions about Amtrak’s replacement strategy, which was favored by Babcock & Brown, saying officials didnt fully consider other potentially less expensive options. Amtrak defended its strategy.

In a response to the inspector general’s report by Thomas C. Carper, chairman of Amtrak’s board of directors, Amtrak officials last fall disputed many of the inspector general’s findings. The response said the executives who received outside legal services were never told that they weren’t targets in the investigation; rather, they were told “not at this time.”

Amtrak officials also said the investigation included potential criminal violations “which clearly invoke indemnification rights.”

Amtrak also defended Mr. Stein and Mr. Campbell about whether they disclosed a potential conflict involving Babcock & Brown after an inquiry from a Transportation Department official. The rail company said “it must be noted that … they responded to the question of whether there was a conflict of interest by saying there was not conflict of interest. That was the good faith conclusion of those two officers of the company.”

The lease inquiry wasn’t the first time Amtrak footed legal bills. In a separate investigation, Amtrak paid nearly $150,000 in legal fees on behalf of the two unnamed former officials investigated in a nearly seven-year probe into accounting irregularities that concluded in 2008.

The inquiry found that the former officials in fiscal 2001 either booked false or incorrect accounting entries in Amtrak’s monthly financial statements or failed to report the activities at a time when Amtrak was under pressure from Congress to wean itself off of public subsidies.

The Times reported earlier this year on the previously undisclosed investigation, which concluded without criminal charges although the Inspector General’s Office later noted that “neither individual acted in good faith.”

While accounting misstatements have long since been corrected, it’s unclear whether Amtrak ever recouped any of the legal bills it paid out on behalf of the officials.

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