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that the General Manager then arrange to fill them.

Willis agreed

with Mason.

However, white said this was

an impossible management

arrangement that was unacceptable to him.

The TVA Board, on January

3, despite Mason's advice, approved the proposed contractual

arrangements and an 18 U.S.C. § 208(b) determination of

insubstantiality for White.

I had been away from the office from December 26, 1985, until

January 6, 1986.

Mason had telephoned me several times, and I had

indicated my agreement with his views. I returned to the office on January 6, met with the Board members and Willis, and told them on

several occasions during January that the Section 208(b)

determination for White was doubtful, at the very least, because his

interests in SWEC and STEMAR could be considered to be substantial.

I had considerable discussions with the Board members, Willis, and

white during the remainder of January, and the issue came to a head

once again early the next month.

It developed at that time that

White wanted to engage four SWEC employees--including Richard Kelly,

an officer, employee, and director of SWEC and a substantial stockholder of SWEC's parent company, Stone & Webster, Inc.--who

would also be authorized to order personnel and services for TVA

from SWEC.

Mason and I advised the Board that, in our opinion, such

arrangements would violate Section 208, and that a waiver under

Section 208(b) could not be legally justified. When Dean asked me hypothetically if I would vote for the waivers if I were on the Board, I emphatically answered "No" on two different occasions.

There was no misunderstanding of our views of the egregiousness of this pyramiding of additional layers of contract managers with conflicts on top of the arrangement the Board approved on January

Mason and I recorded the events and advice we gave during this

3.

period in a memorandum to the General Counsel's files dated February

13, 1986, copies of which were given or sent to the Board members,

Willis, and TVA's Inspector General, Norman Zigrossi (Zigrossi) (OGE

also has a copy), and in a detailed chronology that we gave to

Zigrossi.

One of the three Board members, Richard M. Freeman,

resigned on February 13. The other two Board members approved a Section 208(b) insubstantiality determination for the four SWEC

employees.

Over the next few months, the Section 208 problem was mentioned

repeatedly in informal conversations between the Board members and me including, beginning in late February, my suggestion that the insubstantiality determinations had existed so long without

correction that someone might suggest that the Board members were acting as aiders, abettors, or accessories to criminal violations of

Section 208.

The discussions with the Board often occasioned angry retorts from

the members. For example, Director John B. Waters (Waters) told me in a heated manner that Mason's and my February 13 files memorandum was not as good as our work usually was (a disinterested reader can

make his or her own judgment about the quality of what was intended to be a record of events) and that it caused Waters to have the

worst weekend of his life.

As I tried to suggest solutions to the

conflicts problem, Waters said to me repeatedly. "White won't agree

to change the contracts," or "white won't like that suggestion."

white told me that he wanted some lawyer other than Mason to work

with him on preparing additional loaned manager agreements and asked

that I assign my deputy, Lewis E. Wallace (Wallace), to do so. He said, "when Mason comes in the room, the whole atmosphere changes."

During this period, Representative Schroeder of Colorado raised with TVA various questions she had as to TVA's authority to enter into a contract with SWEC and STEMAR for management services for its

nuclear plants and into the employment arrangements for Zigrossi,

especially with regard to the compensation to be paid.

She then

referred a number of such questions to the General Accounting Office

(GAO).

On March 21, GAO sent TVA a letter asking for its views on

these questions.

On April 1, Board Chairman Dean sent me a

memorandum (Ex. 2) asking that I prepare a legal opinion for the

Board on these questions, which I did.

The same April 1 memorandum

from Chairman Dean included a final paragraph reading:

In addition to the above request, I would like your written
advice on any possible criminal liability the Board or General
Manager may incur in contract administration. You have
verbally suggested to me and the General Manager that there
are potential liabilities and I need to know the alleged basis
for these comments. This is the first time there has ever
been a hint of potential criminal liability on the Board's.
part. In the event that any action by the Board or General
Manager has unintentionally created the possibility of a
criminal violation, I want to know about this immediately.
As Chairman, I will not tolerate any violation of criminal law
at any level of TVA.

a

Mason and I were dumbfounded by this language since we had pointed out repeatedly, beginning on January 2, that Section 208 was criminal statute which provided criminal penalties for anyone convicted of violating it. Our February 13 files memorandum, of

which the Board members received copies as previously noted, quoted

the statute in full (pp. 1-2, n.l) and contained (at p. 11) a

sentence reading:

In our opinion, the financial disclosure requirements of the Ethics in Government Act of 1978 and the conflict of interest statute 18 U.S.C. S 208 apply to White, Kelly, and others similarly situated, and noncompliance with those laws would be a blatant disregard of them.

I assumed, however, that the Board might be having second thoughts

about its February 13 Section 208(b) determinations, about which we had so often warned them, and might want a more formal and

definitive memorandum as a basis for changing or modifying its

previous action.

Mason and I, taking into account the similar views

and comments of some other lawyers in the office, prepared and sent

to Dean the May 5 memorandum as to which OGE is, of course, fully

advised.

B.

Actions of the TVA Board following and with

respect to the May 5 memorandum.

Following my May 5 memorandum, it quickly became apparent that my assumption as to the Board's possible use of it as a basis for

changing its position as to the Section 208(b) waivers was

incorrect, and that the effort to isolate Mason from any substantive

work in ethics and his other areas of work responsibility were to be continued and extended to me relating to my duties as General Counsel and DAEO. Thus, even though Dean had requested our May 5

memorandum, the Board greeted it with hostility (as it had earlier

greeted the February 13 files memorandum) and with an apparent determination to avoid, if possible, giving effect to the

conclusions set out in its final paragraph.

This attitude continued

even after the Board received the strongest possible affirmation of

our May 5 opinion from the independent counsel it employed, without

my prior knowledge, to advise it on the 18 U.S.C. § 208 problem;

after it received telephone calls from Senators Sasser and Gore

about the problem (see discussion below); and after oge in its

June 23 letter to Dean had expressed its full agreement with our

May 5 memorandum and urged the Board to cooperate with me as DAEO.

The Board indicated to me its displeasure not only with what the

May 5 memorandum said, but with my having sent a copy of it to

OGE.

Before sending OGE a copy, I had told the Board that I was

In

going to do so because the governing regulation required it. view of the Board's continuing expressions of displeasure on this point, I reminded them that on September 29, 1980, the Board itself had adopted a resolution (Ex. 3, pp. 26-27) which appointed me TVA'S

DAEO under the Ethics in Government Act of 1978 and TVA's ethics

counselor under Executive Order No. 11, 222, and which made me

"responsible for assuring TVA's compliance with that act and Executive order and the regulations promulgated thereunder." I also again pointed out to them that one of those regulations, codified in 5 C.F.R. S 738.313, requires that every designated agency ethics

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