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Omaha Company's Windfall, Hiring of Lawmaker's Son Irks Senator

A quiet battle to stop pork barrel spending in the 2008 defense appropriations bill is going public as two senators trade accusations over who is wasting more taxpayers’ money.

The conflict has raised questions that Nebraska Sen. Ben Nelson would be violating a key provision of a still-unpassed ethics bill by failing to disclose that his son is an manager at a company that received millions in federal tax money, much of it requested by the senator himself.

The bill, the Transparency and Accountability Act, has been passed by the Senate but still has not been voted upon in the House of Representatives.

“I think the American people would say something smells bad with that,” Sen. Tom Coburn, R-Okla., said in an interview with FOX News. “And the fact is people are investing in lobbyists to get earmarks, not to do priority things but to enhance themselves."

An aide to Nelson denies that the Nebraska Democrat has done anything wrong.

“The senator is in full compliance with the law,” said Nelson spokesman David DiMartino. “And it is well-known his son Patrick works for the company.”

The conflict began when Coburn asked Nelson to remove a $7.5 million earmark for an Omaha company — 21st Century Systems Inc. — to produce computer software for the military.

Nelson refused to remove the earmark and his office fired back — identifying an Oklahoma company that received millions in tax dollars to help produce Sony’s blockbuster video game "Full Spectrum Warrior."

“What is clear from this embarrassing episode for Sen. Coburn is that in his zest to embarrass a successful small business in Nebraska, he failed to do his homework,” DiMartino said. “Sen. Coburn should be reminded he took a Hippocratic oath not the hypocrite oath.”

Coburn escalated the fight a day later, asking Secretary of Defense Robert Gates if 21CSI, which began as a basement start-up and is now a company with offices in 10 states, had used any federal tax money illegally to lobby the congressmen who have helped it obtain millions in federal money since the company’s founding in 2000.

In his letter to Gates, Coburn said he became concerned after 21CSI vice president executive Bill Berl refused to provide his staff any information, replying, “I’m not sure this process works in our favor.”

“The truth is, it does not appear this process works in taxpayers’ favor,” Coburn told Gates. “Based on this situation, it is my concern that recipients of federal funds may not be complying with the law.”

Since 2000, 21CSI has given more than $160,000 to political candidates, mostly Democratic incumbents on the Armed Services and Appropriations subcommittees. During that time, it obtained $40 million, or roughly 80 percent of company revenues, in federal taxpayer money through congressional earmarks.

Earmarks are federal contracts steered directly to a company by members of Congress and which fall outside the normal budget process. In Nebraska, where it recently received an award for entrepreneurship, locals call 21CSI "the company that Congress built."

Nelson has obtained more than $25 million in federal earmarks to fund 21CSI projects, in addition to another $7.5 million in the 2008 defense appropriations bill for a software system to help the military better target bombs.

In 2004, 21CSI hired Nelson’s then 33-year-old son, Patrick, as its marketing director. Since then, according to Federal Election Commission documents, 21CSI executives and the company’s political action committee have given Sen. Nelson more than $18,000.

Coburn claims the Pentagon has not ordered any of 21 CSI's technology through the normal budgeting process, and military officials told Coburn it did not ask for and does not need the program. Instead, friends in Congress got the money for 21CSI outside the competitive process through earmarks.

“Members of Congress don't know better than the military what the best weapons are, what the best technology is,” Coburn said. “If the military doesn't put it on a wish list why in the world do we force it down their throat?

“Unfortunately, I think he is misinformed,” 21CSI CEO Jeff Hicks said of Coburn. “We have been delivering R&D over the life of our company. We have won over 100 Small Business Innovative Research contracts in our history. And we are now delivering that technology to the war fighter.”

As for its campaign contributions, Hicks said, “The last time I checked that is not against the law.”

The problem, Hicks added, is the defense appropriations process discriminates against small companies. After early stage financing through small-business grants, the government leaves promising technology high and dry, forcing executives to go to Congress for continued funding. Among start-ups, such bridge financing often is called the "Valley of Death."

“We have to focus on our military customers to make sure we can get things into the budget with them. We have to also work with Congress to make sure we get across the funding of the Valley of Death.”

“It certainly looks bad, it certainly looks like a pay-to-play or a quid-pro-quo kind of situation,” said David Sirota, a former House appropriations staffer. “I think taxpayers should be suspicious of all of these kinds of earmarks that do not go through proper scrutiny. But I think that we have to be careful before we outlaw earmarks.”

In January, the Senate passed the Transparency and Accountability Act by a vote of 98-0. It states “no member shall use his official position to introduce, request or otherwise aid the progress or passage of a congressional earmark that will financially benefit or otherwise further the pecuniary interest of a member … spouse … or immediate family of such a member …(including) a son.”

Critics say Nelson, who voted for the bill, should have disclosed the family conflict or refused to sponsor the earmark.

“When we have obvious conflicts of interest,” said Coburn, “the American people ought to be able to see it so they can judge it for what it is.”

Nelson’s staff claims the senator didn’t have to comply because the House has yet to act on the bill and the restrictions have yet to take effect.

As for Nelson's son, Hicks said, “Patrick has been with us. He has done a great job. He is our marketing director. He is not associated with the contracts.”

When asked about the appearance of a conflict of interest, 21CSI public affairs executive Larry Jackson stopped the interview. “That’s it,” he said. “We’re done,” and Hicks left the room.

Jackson said Tuesday that he stopped the interview because Hicks had to catch a flight, and his understanding was that the interview would last 15 minutes and not a second longer.

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Editor's Note: An earlier version of this story incorrectly implied that the Transparency and Accountability Act had been passed into law. The bill has been passed by the U.S. Senate, and still has not been voted upon by the House of Representatives.

William La Jeunesse joined FOX News Channel (FNC) in March 1998 and currently serves as a Los Angeles-based correspondent.