Archive for Wednesday, February 13, 2008

Johnson, Hack cleared of potential charges

AG investigation finds insufficient evidence for conflict of interest cases in Deciphera deal

February 13, 2008


No conflict for Hack or Johnson

The Kansas Attorney General's office ruled that two local officials did not violate the state's conflict of interest laws by working to keep a pharmaceutical company in Lawrence. Enlarge video

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Investigation findings ( .PDF )

Neither Douglas County Commissioner Bob Johnson nor Mayor Sue Hack will face charges that they violated the state's conflict of interest laws by owning a piece of a company to which the city and county offered financial incentives.

The Kansas Attorney General's Office has found that there's not enough evidence to pursue a case against Hack and that Johnson's ownership interest in Deciphera Pharmaceuticals is not of the type that puts him in jeopardy of violating the conflict of interest laws.

Both Hack and Johnson said they weren't surprised by the findings but were glad the issue is over. If they had been found to have violated the conflict of interest law, they could have been forced to resign their elected position.

"I think now the question has been asked and answered," Hack said. "I hope that we can move on."

Grassroots Action satisfied

The issue stemmed from the city and county's efforts to keep Deciphera Pharmaceuticals - a Lawrence-based start-up - from leaving the community. The city, county and other groups had put together a package of economic incentives for the company totaling more than $1 million over a 10-year period.

A citizens group - Grassroots Action - began raising questions about the deal because both Hack and Johnson have ownership interests in the company. Grassroots Action leaders said they were concerned that Hack and Johnson had violated a state law prohibiting elected leaders from making or participating in the making of a contract with a company that they own.

But on Tuesday, David Smith - president of Grassroots Action - said he was willing to live with the findings of the attorney general's office.

"The attorney general's office is competent to make these findings," Smith said. "I can't really see what more can be examined. We have to trust that the attorney general's office looked at all the pertinent information."

Findings on Hack

The attorney general's investigation - led by Assistant Attorney General Barry Disney - came up with two sets of findings.

For Hack, the investigation found that there was insufficient evidence that she had advocated for the approval of the package of financial incentives. The investigation notes that Hack did attend a closed-door executive session on the matter, but the law doesn't prohibit her from attending the meeting. It only prohibits her from advocating a position on the issue. The investigation turned up no evidence of Hack taking a position. The executive session meeting was not recorded, nor were any minutes taken.

There also had been allegations of Hack attending other city staff-level meetings on the topic. The investigation held open the possibility that she attended other meetings where the issue was discussed, but again found no evidence that she advocated a position.

As the attorney general's office had noted in a previous investigation on the matter, Hack's attendance at any meeting where the issue was discussed "contributed to the appearance of impropriety."

Hack reiterated Tuesday that in no meeting or other gathering did she urge that the incentive package be approved or provide direction on how it should be structured. Instead, she said she received only briefings on the process.

Findings on Johnson

In Johnson's case, the investigation found that he does not have a legally defined "substantial interest" in Deciphera. Instead, Johnson owns a 50-percent stake in a partnership called J&S; Holdings. J&S; Holdings has an $8,200 interest in DEC Investors, which has an ownership interest in Biochenomix. Biochenomix, in turn, has an ownership interest in Deciphera.

The state law defines a "substantial interest" in a company as being a direct ownership interest, not ownership through a series of partnerships. Johnson had listed on his state-mandated statement of substantial interest that he owned a portion of Deciphera. But the attorney general's investigation found that he was not legally required to report any relationship he had with Deciphera, and was entitled to vote and offer opinions on the deal. Johnson did advocate for the approval of the incentives package.

"I was under no obligation to disclose it at all, but if I hadn't, I was concerned it would have created the appearance of impropriety," Johnson said. "I didn't want to have the accusation that I was hiding anything. But I'm sorry that it became the thing that it did."

Hack on Tuesday said she believes she is legally in the same situation that Johnson is in. She said her ownership interest in Deciphera is through a partnership very similar to Johnson's. She, however, had not provided that detailed information to the attorney general's office, she said.


Baille 10 years ago

Johnson was cleared of all charges. Hack was not. "Lack of evidence" is not the same as "the evidence show no crime was committed."

OnlyTheOne 10 years ago

"has found that there's not enough evidence to pursue a case " Sorry LJ-W but "not enough evidence" isn't the same as being "cleared!"

Kontum1972 10 years ago

ahem....they both knew what they were doing.....! mb some good irs field agent will want to do some homework, and move up the ladder.

The executive session meeting was not recorded, nor were any minutes taken..LoL...wonder why?

justthefacts 10 years ago

I wonder, does anyone know if the AG's office spoke with other people present at the meeting(s) [including the exec. session] to see what they remember about whether Mayor Hack said anything, pro or con, about the proposed deal going through? If so, and no one remembers her speaking about the topic, the correct result was reached. If not, it's hard to say there was not enough evidence that she voiced an opinion on the topic if available avenues of evidence were not pursued.

Sigmund 10 years ago

"Johnson owns a 50-percent stake in a partnership called J&S Holdings. J&S Holdings has an $8,200 interest in DEC Investors, which has an ownership interest in Biochenomix. Biochenomix, in turn, has an ownership interest in Deciphera."

So if Bob is on a train going 160mph and headed east from LA and Sue is on a plane going 250mph headed West out of NYC, when they meet in Lawrence how much of an interest does Sue have in Diphtheria?

Seriously, these LLC's, LLP's, and assorted business organizations are often designed to obfuscate who are the beneficial owners. By layering ownership they hope that untangling various individual interests will be so difficult that outsiders will rarely if ever work through the maze. Yet those who are in the best position to disclose their ownership in these private businesses, the partners themselves, are NOT required by to do so when they do businesses or get special favors from the City of Lawrence.

The Diphtheria Debacle was little more than a none-to-bright-mayor doing what politicians have done for years in this town on BOTH sides, making cozy deals with people whose last names are LLC, LLP, and Partnership and who are really composed of the politically connected. And let's not forget that the previous Kommission approved essentially this very same deal. In fact the deal they made such a fuss about was on terms financially more favorable to the City than the one the previous Kommission themselves made!

These political insiders, from both sides, make their living soaking tax payers with studies and grants and rebates and abatements while hiding their individual identities behind legal business structures and making it difficult to follow the taxpayers money into their pockets. Then suddenly they can't fix the streets and sidewalks!

If the current Commissioners or the PLC/GRA truly wanted "transparency, openness, and accountability" in local government they would be pushing for real reform. A local rule that requires every LLC, LLP, LP's, and every other private business entity who does business with the City's public checkbook to register who their 'real' owners are. What are they ashamed of, why hide the real owners?

We register domestic partnerships in this town, what is so hard about registering business partnerships that receive tax rebates, tax incentives, zoning exemptions, or are awarded contracts by the City? It is not hard at all, it is just our political "leaders" don't want you, the taxpayer, to see behind the curtain at city hall.

ontheotherhand 10 years ago

"The investigation [at the closed-door meeting] turned up no evidence of Hack taking a position. The executive session meeting was not recorded, nor were any minutes taken."

So I guess two naked people and a monkey could have danced in that meeting but who could verify since no one bothered to record the meeting or take minutes? How conveeeeeeenient. And how utterly irresponsible. Shame on you, City officials!

Sigmund 10 years ago

beobachter, thanks for your insightful and in depth analysis, but, just getting rid of the Mayor will not eliminate the mechanism that created the problem. Nor will repeating "a hack, is a hack" a million zillion times like a three year old who OD'ed Halloween candy.

The problem is much much larger than just Sue Hack. The Citizens of Lawrence need to demand that all the private partnerships and corporations who hide their real owners behind layers and layers business structures and get tax payer funded deals and favors every day, disclose their real owners to the people paying the bills, the citizens of Lawrence, Kansas. All of us. You, me and that guy behind that tree.

Only when we have the same knowledge as city insiders will be empowered to judge their actions and effectiveness. Sue Hack is merely the scapegoat du juor. Getting rid of her is not a real permanent change and will not effectively stop this from happening again and again in the future, like it has in the past. Only the names will change.

Richard Heckler 10 years ago

The laws were written by polticians for politicians. The partnership aspect is one big loophole.

Unethical/irresponsible behavior is still on the table anyway one looks at it. It is all how one defines conflicts of interest in the real world not how it is written into law by politicians.

Richard Heckler 10 years ago

Consequences of Corruption

Among the many disagreeable aspects of corruption is evidence that it slows economic growth through a wide range of channels.

  • In the presence of corruption, businessmen are often made aware that an up-front bribe is required before an enterprise can be started and that afterwards corrupt officials may lay claim to part of the proceeds from the investment. Businessmen therefore interpret corruption as a species of tax--though of a particularly pernicious nature, given the need for secrecy and the uncertainty that the bribe-taker will fulfill his part of the bargain--that diminishes their incentive to invest. Empirical evidence suggests that corruption lowers investment and retards economic growth to a significant extent.

  • Where rent seeking proves more lucrative than productive work, talent will be misallocated. Financial incentives may lure the more talented and better educated to engage in rent seeking rather than in productive work, with adverse consequences for the country's growth rate.

  • Of particular relevance to developing countries is the possibility that corruption might reduce the effectiveness of aid flows through the diversion of funds. Aid, being fungible, may ultimately help support unproductive and wasteful government expenditures. Perhaps as a result, many donor countries have focused on issues of good governance, and in cases where governance is judged to be especially poor, some donors have scaled back their assistance.

  • When it takes the form of tax evasion or claiming improper tax exemptions, corruption may bring about loss of tax revenue.

  • By reducing tax collection or raising the level of public expenditure, corruption may lead to adverse budgetary consequences. It may also cause monetary problems if it takes the form of improper lending by public financial institutions at below-market interest rates.

  • The allocation of public procurement contracts through a corrupt system may lead to lower quality of infrastructure and public services.

  • Corruption may distort the composition of government expenditure. Corruption may tempt government officials to choose government expenditures less on the basis of public welfare than on the opportunity they provide for extorting bribes. Large projects whose exact value is difficult to monitor may present lucrative opportunities for corruption. A priori, one might expect that it is easier to collect substantial bribes on large infrastructure projects or high-technology defense systems than on textbooks or teachers' salaries.

kweb4 10 years ago

The results of the investigation don't surprise me a bit. Unfortunately, it's Deciphera that's paying the real price for this.

Politics. Gotta love 'em.

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