AP lays out the facts:
RICHMOND, Virginia (AP) – Sen. George Allen, locked in a tight re-election race, still holds stock options from his time as director of a high-tech company, but has failed to disclose them to Congress and the public the past five years. The Virginia Republican also asked the Army to help another business that gave him similar options. Congressional rules require senators to disclose to the Senate all deferred compensation, such as stock options. The rules also urge senators to avoid taking any official action that could benefit them financially or appear to do so. Those requirements exist so the public can police lawmakers for possible conflicts of interest, especially involving companies with government business that lawmakers can influence. Allen’s stock options date to the period from January 1998 to January 2001 when Allen was between political jobs and had plunged into the corporate world. An Associated Press review of Allen’s financial dealings from that era found that the senator:
• Did not have to look far to find corporate suitors, joining three Virginia high-tech companies he assisted as governor. Allen served on boards of directors for Xybernaut and Commonwealth Biotechnologies and advised a third company called Com-Net Ericsson, all government contractors.
• Twice failed to promptly alert the Securities and Exchange Commission of insider stock transactions as a Xybernaut and Commonwealth director. The SEC requires timely notification and can fine those who file late.
• Kept stock options provided to him for serving as a director of Xybernaut and Commonwealth, but steered other compensation from his board service to his law firm.
The story later described Senator Allen’s excuses:
In interviews, Allen and his staff sought to play down his corporate dealings, saying they were a good learning experience but did not lead to extraordinary riches – except for a quarter-million-dollar windfall from Com-Net Ericsson stock. Allen’s office said he sold his Xybernaut stock at a loss and has not cashed in his Commonwealth options because they cost more than the stock is now worth. The senator also said he saw no conflict going to work for companies shortly after assisting them as governor. “I actually got no money out of Xybernaut. I got paid in stock options which were worthless. Commonwealth Biotech asked me to be on their board. Glad to do it. I learned a lot on their board and enjoyed working with them, and they seem to be doing all right, I guess,” Allen said.
But then comes the reality:
The disclosure requirements exist so the public can watch for potential conflicts of interest, and Allen had an obligation to report his Commonwealth stock options to Congress, two ethics experts said. “As an ethical matter, it’s irrelevant whether the exercise price of those stock options is above or below the current market price of the stock,” said Kathleen Clark, a Washington University of St. Louis law professor, former prosecutor and former Democratic congressional aide. “If he owns stock options, he does have such a financial stake, whether the exercise price is above or below current market value.” Lawyer Marc Elias, who represents Democrats in ethics cases, said the conflict issue is even clearer because Commonwealth gets federal contracts. “Unlike some other controversies that have come up from time to time, this is a situation where the underlying asset is in a company that has business before Congress,” Elias said … Both Commonwealth and Xybernaut have suffered through difficult times and federal contracts have been an important financial lifeline in recent years. Allen’s office acknowledges he has met socially over the years with company executives and his office has granted “routine courtesy meetings” from company lobbyists “to hear their opinion on legislation and issues before the federal government.” Reid said he is aware of only one time that Allen’s office helped any of his former companies. That came in December 2001 when Allen asked the Army to resolve a lingering issue with Xybernaut. The company asked Allen to intervene, and he urged the Army to give Xybernaut an answer, Reid said. At the time, Allen still owned options to buy 110,000 shares of Xybernaut stock, which could be affected by any new federal contracts.
We have word that Allen has responded to the AP story. “I don’t even know what ‘stock options’ means. I just made the term up. I have never used that term in my private life.” Maybe so, but we understand that the use of “stock options” began in French colonial North Africa, where Allen’s mother was raised.
Given the excuses offered by Senator Allen, maybe he does not understand stock options. Even underwater options have value if the price of the underlying stock has some possibility of increasing. It is sort of like holding a lottery ticket before the announcement of the winning numbers – a low probability exists that one might cash in but if one does, one could make a fortune. Now suppose one of the holders of the lottery ticket actually got to influence which numbers would be chosen. I’m not saying that Senator Allen actually tried to increase the value of the companies for which he held options by altering public policy decisions, but isn’t this why we have disclosure requirements in the first place?
Garance Franke-Ruta had a lot more about a month ago.