Interior Department employees accused in sex, gift scandal

WASHINGTON — Government brokers responsible for collecting billions of dollars in federal oil royalties operated in a "culture of substance abuse and promiscuity" that included having sex with energy-company employees, accepting lavish gifts and rigging contracts to favored firms, investigators said Wednesday.

The alleged transgressions involve 13 former and current Interior Department employees in Denver and Washington. Their alleged improprieties include influencing contracts, working part-time as private oil consultants and having sexual relationships with — and accepting golf and ski trips, snowboarding lessons and concert tickets from — oil-company employees, according to three reports released Wednesday by the Interior Department's inspector general.

The investigations expose a small group of individuals "wholly lacking in acceptance of or adherence to government ethical standards," wrote Inspector General Earl Devaney, whose office spent more than two years and $5.3 million on the investigation.

"Sexual relationships with prohibited sources cannot, by definition, be arms-length," Devaney said.

The reports describe a fraternity-house atmosphere inside the Denver Minerals Management Service office, which is responsible for marketing oil and natural gas that energy companies barter to the government in lieu of cash royalty payments for drilling on federal lands. The government received $4.3 billion in such royalty-in-kind, or RIK, payments last year. The oil and gas is resold to energy companies or put in the nation's emergency stockpile.

The Minerals Management Service collects about $10 billion in royalties annually and is one of the government's largest revenue sources besides taxes.

"A culture of ethical failure" pervades the agency, Devaney wrote in a cover memo.

"During the course of our investigation, we learned that some RIK employees frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives," one report said. Two government employees who had to spend the night after a daytime industry function because they were too intoxicated to drive home were commonly referred to by energy traders as the "MMS Chicks."

Gifts and gratuities

Between 2002 and 2006, 19 oil marketers — nearly a third of the 55-person staff in the Denver office — received gifts and gratuities from oil and gas companies, including Chevron, Shell, Hess and Denver-based Gary-Williams Energy, the investigators found. The investigation focuses on nine employees — all but one of whom received ethics training — who attended meals, parties, paintball games and concerts whose value exceeded the $20-per-gift limit or $50-a-year thresholds on outside gifts. In the case of two marketers, gifts were accepted on at least 135 occasions. The report identifies eight of the employees by name and a ninth by job description.

One worker admitted having a one-night stand with a Shell employee. That same individual allegedly passed out business cards for her sex-toy business at work and bragged that her income from that business exceeded her salary at the Interior Department.

The employee was authorized to conduct such outside employment and denied to investigators that she advertised for it during work hours, the report said. She admitted selling products to subordinates.

Devaney said the investigations took so long because Chevron refused to cooperate. An Interior Department official said Chevron would not allow investigators to interview its employees.

Don Campbell, a Chevron spokesman, said Wednesday that the company "produced all of the documents that the government requested months ago." A Shell spokeswoman said it would be premature for the company to comment before it reviewed the reports.

Maripat Sexton, a spokeswoman for Hess, said the company's investigations "indicated no wrongdoing on our employees' part."

One of the reports says the former head of the Denver royalty-in-kind office, Gregory Smith, purchased cocaine from a co-worker, and on one occasion had it delivered to the office. He also allegedly engaged in oral sex with subordinates. The report also said he steered government contracts to Geomatrix Consultants and used government databases and e-mail to conduct business for the company, which paid him $30,000 for his work from April 2002 through June 2003. Smith retired in May 2007.

Smith's attorney, Steve Peters, called the claims "sheer fantasy."

"Greg Smith was a loyal, dedicated employee of the federal government for more than 28 years," Peters said Wednesday. "His efforts in running the royalty-in-kind program resulted in one of the most profitable government programs in American history."

Taking report "seriously"

Minerals Management Service Director Randall Luthi said the agency was taking the report "extremely seriously" and would review the allegations and weigh taking appropriate action. Luthi said four of the employees were transferred to other departments last year. The inspector general is recommending that current employees implicated be fired and be barred for life from working within the royalty program.

House Natural Resources Chairman Nick Rahall, D-W.Va., said "this whole IG report reads like a script from a television miniseries and one that cannot air during family viewing time."

One of the employees named in the investigation, Jimmy Mayberry, has pleaded guilty in U.S. District Court in Washington to violations of conflict-of-interest laws. The Justice Department declined to prosecute Smith and former Associate Director of the Minerals Revenue Management program Lucy Denett, who the report says manipulated contracts to ensure they were awarded to former Interior employees. Denett retired this year as the inquiry progressed.

The findings are the latest sign of trouble at the Minerals Management Service, which has been accused of mismanaging the collection of fees from oil companies and writing faulty contracts for drilling on government land and offshore. The charges also come as Congress and both presidential candidates are debating whether to open up more federal offshore waters to oil and natural-gas drilling.

"This all shows the oil industry holds shocking sway over the administration and even key federal employees," said Sen. Bill Nelson, D-Fla. "This is why we must not allow Big Oil's agenda to be jammed through Congress."

The investigation was prompted by a 2006 call from an employee in the Denver office reporting ethical lapses.

Information from The New York Times is included in this report.