RICHMOND, Va. – For the past five years, Sen. George Allen, has failed to tell Congress about stock options he got for his work as a director of a high-tech company. 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.
Allen, a potential 2008 presidential candidate, rose to prominence as a conservative from Virginia, serving in the U.S. House and as governor. From 1998 through 2000, he worked as a private lawyer and businessman before joining the Senate in 2001.
He now faces a tough re-election campaign against Democrat Jim Webb.
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 'em, and they seem to be doing all right, I guess," Allen said.
The Disclosure Issue
Allen's office said he did not report his Commonwealth options on his past five Senate disclosure reports because their purchase price was higher than the current market value. Allen viewed them as worthless and believed in "good faith" he did not have to report them, aides said.
Allen disclosed the options once — on an amendment to his 2000 ethics report filed three months after the normal filing period ended. He excluded the options from subsequent reports.
When AP showed Allen's lawyer the Senate ethics manual requirement that such options must be reported each year regardless of value, the lawyer said he was unfamiliar with that provision. Allen has now asked the Senate ethics committee for an opinion on whether he should have disclosed them.
"While we continue to believe that we have disclosed more than is required, we will abide by the formal ruling of the committee," Allen spokesman John Reid said.
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.
Commonwealth granted Allen options on 15,000 shares of company stock at $7.50 a share in May 1999, company chief executive Robert Harris said.
The company's stock has a history of wild fluctuations, typically rising after new government contracts. It hit $9 to $10 a share the month after Allen left the board. It has been closer to $2 recently.
Commonwealth usually gives departing directors just 90 days to exercise stock options, but Allen's were extended until as late as May 2009 because he was entering public service, Harris said.
When Allen left for the Senate, Commonwealth made clear it hoped he would help the company in his new job. "We, of course, wish him much success in Washington and look forward to his pro-business agenda reaping benefits for CBI, the commonwealth and the nation," company chairman Richard Freer said.
Help for Xybernaut
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.
The Army answered but did not give Xybernaut what it wanted, and Allen did nothing more, Reid said. The office declined to release the correspondence, saying constituent letters are confidential.
Allen himself said he could not recall helping, and only met former company associates socially. "Whether I see a former — whatever the question is — personally at some social event or political event over the years, so what?" Allen asked.
Xybernaut declined comment.
Allen Assisted Companies as Governor
As Virginia's governor, Allen took representatives of Xybernaut and Ericsson on trade missions. He helped steer $4 million in tax-exempt bonds to Commonwealth for new headquarters and announced an $800,000 state grant to help Lynchburg, Va., prepare a site for an Ericsson expansion.
Then he went to work for those companies.
Allen joined Commonwealth's board of directors about two months after leaving the governor's office in January 1998. Xybernaut named him a director that August, and he became a Com-Net Ericsson adviser in February 2000.
"He was an ex-governor and pre-senator," Commonwealth's Harris said. "He represented a skill set that was of value to the company in terms of his corporate legal experience and he was, and is, a high-profile person prominent in Virginia and elsewhere."
The three companies have had starkly different fates in recent years.
Com-Net Ericsson became part of Tyco after Allen left the board, and got a new management team.
Commonwealth reported its first full year of profitability in 2005.
Xybernaut, which makes a computer people can wear on their heads, sought bankruptcy protection last year and is being sued by shareholders. The SEC also is investigating the company.
Allen's office said he had no knowledge of any wrongdoing at Xybernaut. The senator sold his Xybernaut stock at a modest loss in 2005.
Belated Filings to Regulators
At least twice during his corporate service, companies told the SEC that Allen had failed to promptly file required reports on insider stock transactions.
In March 1999, Commonwealth reported to the SEC that Allen failed to "timely file" a report showing an initial statement of beneficial ownership in the company and a single acquisition of stock. The transactions were subsequently reported, it said.
In April 2000, Xybernaut told the SEC that Allen and all but one of his fellow directors failed to file statements of beneficial ownership in a timely way.
The SEC makes it the responsibility of directors, not their companies, to file insider stock notifications. Those who file them late can face civil penalties.
Allen's office said he considered it the companies' responsibility to file the reports and the SEC never contacted him or took action against him.