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Mr. SIKORSKI. Mr. Mason?


GENERAL COUNSEL, TENNESSEE VALLEY AUTHORITY Mr. MASON. Mr. Chairman, I have never witnessed nor imagined from TVA a more baseless personal attack on an employee for doing his job than the one that has been directed at Mr. Sanger. Despite a written TVA policy, adopted by the Board, assuring TVA employees that their views on all matters will be heard and that no harassment, reprisal or intimidation will be allowed for doing so, the Board and its agents have repeatedly attacked us for our ethics advice. Examples are set out in the statement that you have been provided and they are really too lengthy to detail in any kind of summary statement. But I want to sketch the pattern that Mr. Sundquist referred to.

Even before the Board asked Mr. Sanger to leave on July 30, the Board's retained counsel, Mr. Swidler, was telling David Martin at the Office of Government Ethics that Mr. Sanger's future at TVA was uncertain. On July 30, the chairman of the TVA Board, Director Dean, asked Mr. Sanger to resign because of the advice he had given on the 208 matter, and then proceeded over the next two weeks to conduct a charade of discussing the terms on which he would do so.

Despite those discussions, two days later TVA’s Inspector General made his demand for all Retirement System records over a past 10-month period, directly contrary to a 38-year TVA practice. At the same time the Board members were telling others, but not Mr. Sanger, that they could not reach agreement with Mr. Sanger to leave.

On August 18th and 19th, when the Board had told Mr. Sanger that they would meet to sign the final documents concerning his leaving-August 18th and 19th, when they had told Mr. Sanger that they would sign the final documents on his leaving, the Board called him to a vacant office and, without any preliminaries or any notice of the charges, proposed to put him on administrative leave on the pretextual bases that have been referred to.

Since we have left, the Board's leaks of anonymous charges, especially leaks of charges late on Fridays, have continued. Its latest has been referred to and was a leak of a memo from its own counsel (that the members had hired to defend themselves on these section 208 charges) which refers to other allegations that have never been told to Mr. Sanger, which further this campaign of character assassination by allegation, and which have no substance.

This behavior is reminiscent of the practices that have been condemned by the Supreme Court. For instance, in Peters v. Hobby, if you recall the passage.

Dr. Peters was condemned by faceless informers some of whom were not even known to the Board that condemned him. Some of these informers were not even under oath. None of them had to submit to cross-examination. None had to face Dr. Peters. So far as we know or the Board knows, they may be psychopaths or venal people, like Titus Oates, who revel in being informers. They may bear old grudges. Under cross-examination their stories might disappear like bubbles, their whispered confidences might turn out to be yarns conceived by twisted minds or by people who, though sincere, have poor faculties of observation and memory.

I would like to just briefly discuss the three charges that Mr. Sundquist mentions as the allegations that have been made. These are the three charges that the TVA Board purported to act on to propose to put Mr. Sanger on administrative leave in mid-August. They have no substance.

Mr. SIKORSKI. Mr. Mason, these charges came about after it was clear that Mr. Sanger's presence was no longer desired at the TVA and after Mr. Sanger had communicated his desire to leave TVA under the circumstances; isn't that correct?

Mr. MASON. That is correct.

Mr. MASON. The first charge is absurd. It was that Mr. Sanger provided information about a proposed Retirement System benefit change to Mr. Parris, the manager that Mr. White replaced. First, there is no rule or system requirement that retirement matters be kept confidential except those kinds of privacy issues involving medical records or otherwise that aren't involved here at all.

Second, the Inspector General's report found as a fact that TVA's General Manager, Bill Willis, instructed Mr. Sanger to speak to Mr. Parris. It was part of Willis's and the Board's efforts to induce Mr. Parris, a long-term, experienced power executive, to stay with TVA. At the same time the board approved a $36,000 credit to Mr. Parris's deferred compensation account, restored his annual leave, and created a top position for him to occupy. It seems to me highly likely that the Board knew all of Willis's conversations with Mr. Parris.

Third, in the only written, signed statement in the Inspector General's report and in a sworn affidavit to David Martin at OGE Parris makes it clear that Willis told him first about the proposed rule change and that he learned nothing more about the rule change from Mr. Sanger. Willis acknowledged the fact that he had spoken to Parris first about the rule change, to the Inspector General and to the Board as they were acting against Mr. Sanger.

The first charge the Board levels faults Mr. Sanger for acting on the general manager's instruction. The second two charges fault him for not acceding to the TVA Board's wishes. The second charge was that Mr. Sanger impeded TVA's nonstatutory IG's investigation of the legally separate TVA Retirement System. What he actually did was agree with all other Retirement System Board members to seek outside counsel on a noncompulsory demand by the IG for some documents.

Sanger served as one of three TVA Board-designated directors on the seven-person Retirement System Board of Directors. After TVA Chairman Dean and TVA Director Waters asked Mr. Sanger to resign because of the advice he gave on the conflict issues, the Board's IG demanded access to all Retirement System records for the past 10 months including medical, personnel and other privacyrelated information on individuals, investment, financial and other kinds of data.

In addition to my other TVA work I served as the attorney for the TVA Retirement System. I think all recognize that directors of pension funds have significant complex responsibilities with respect to the beneficiaries of those kinds of funds. Here in this circumstance facing this broad document demand, my advice to the System Board was that the system was separate from TVA and not legally subject to audit by TVA. But because of the difficulty of the question, an opinion of outside counsel should properly be sought. This was especially so in light of the 1948-49 interpretation by the TVA Board and the Retirement System Board that the Retirement System's accounts, records and books were separate from TVA's and not subject to GAO audit.

The TVA general counsel and Retirement System director who prepared those positions in 1948 and 1949 is now the TVA Board's current outside counsel, Joseph Swidler, who chastises Mr. Sanger for wanting counsel on TVA's contrary demands now. Two recent Federal court cases reached the same conclusion that the Retirement System is a legally separate entity from TVA.

The third charge was that by acting as a Retirement System director, and in that role with respect to the Inspector General's document demand, Mr. Sanger had precluded the TVA Board from obtaining his legal advice on that jurisdictional question. However, before acting for the System, Sanger told the TVA Board when the issue first came up and they didn't ask him to recuse himself or not act for the Retirement System. In the circumstances, as a TVAdesignated Retirement System director he could not neglect his Retirement System duties that TVA had assigned to him. Of course he recognized that he couldn't advise either TVA or the Retirement System on a matter that he was acting as a director in and did not do so. Thus, there was no substance or sense to any of the Board's three stated reasons for the Board's proposal to place Mr. Sanger on leave. They were obviously cover for its real motivation, which has been over these long weeks to discredit him because of the advice he gave on the conflict-of-interest question.

Thank you very much.
Mr. SIKORSKI. Thank you, gentlemen.

First, let's look at the conflict-of-interest problems at TVA, when they first surfaced and the circumstances surrounding them. As I understand it, the Board felt that TVA needed to hire Admiral White. White wouldn't come on unless he was paid a high salary and unless certain other conditions were met. The high salary cre ated problems. First, it was above the Federal pay cap of $72,500, I believe; and secondly, if he were hired as an employee it would run into the double dipping provisions, and he didn't want that. He didn't want his retirement affected, either.

So an arrangement was worked out by which Mr. White would be hired on a two-year basis for $355,200 per year as an independent contractor, as a consultant, as someone outside of the reach of the pay cap. Is that correct so far?

Mr. SANGER. That is generally correct.
Mr. SIKORSKI. And you have consistently said that is appropriate.
That can be done. That contract is legal. Is that correct?

Mr. SANGER. I did. That is correct.
Mr. SIKORSKI. And you still maintain that?
Mr. SANGER. Yes, sir.
Mr. SIKORSKI. That is not the issue?
Mr. SANGER. That is not the issue.

Mr. SIKORSKI. The issue, as I understand it, is the structure of the arrangement which attempted to accomplish that hiring; Mr. White's demands first that he be hired through Stone & Webster and second that he be able to hire people from Stone & Webster?

Mr. SANGER. That is the problem.

Mr. SIKORSKI. And as I understand it, Mr. White has a no-cut contract with Stone & Webster? Whether he works for Stone & Webster or not, whether he works for the TVA or not, he still gets his $355,200 for each of two years. Is that correct?

Mr. SANGER. The basic reason for the conflict is that he was an officer, or he was an assistant to the director of Stone & Webster.

Mr. SIKORSKI. I understand that.

Mr. SANGER. And he got paid by Stone & Webster, and gets paid by Stone & Webster.

Mr. SIKORSKI. Right. He has the money flowing to him through Stone & Webster.

Mr. SANGER. Through his company.

Mr. SIKORSKI. Through that company. He has an interest in that company. Certainly he has a financial interest in getting his $355,200 through that company.

Mr. SANGER. That is correct.

Mr. SIKORSKI. Then the conflict comes when he wants to hire people, colleagues, employees, of this company, Stone & Webster?

Mr. SANGER. That is correct.

Mr. SIKORSKI. And you can't do that under conflict-of-interest laws.

Mr. MASON. Correct.

Mr. SANGER. I think that is about as clear a conflict as you can have.

Mr. SIKORSKI. So the Board responded: We are going to say that White's interest is "insubstantial and waive any conflict-of-interest problem?

Mr. SANGER. That is correct.

Mr. SIKORSKI. Now the TVA Board did this while you were gone. Isn't that the case?

Mr. SANGER. I was out of town at the time. Mr. Mason handled the discussion. But I don't hide behind being out of town.

Mr. SIKORSKI. No. Mr. Mason, you objected. You raised conflictof-interest concerns?

Mr. MASON. Yes, sir.

Mr. SIKORSKI. And you were in contact by telephone with Mr. Sanger. Did you agree with his concerns?

Mr. SANGER. Yes, sir.

Mr. SIKORSKI. Yet the Board went ahead. And your concerns were communicated to the Board?

Mr. MASON. Yes, sir.
Mr. SIKORSKI. More than once?

Mr. MASON. The discussion occurred at a meeting at which Mr. White and his counsel, Stone & Webster and their counsel, all three members of the TVA Board, the TVA general manager and I were present, all in one room, for all day long on January 2nd.

More than once. It was a long discussion.

Mr. SIKORSKI. And Mr. Sanger, did the discussion continue when you came back on January 6?

Mr. SANGER. Yes, sir.

Mr. SIKORSKI. You were the TVA Designated Agency Ethics Official, or DAEO, is that correct?

Mr. SANGER. That is correct.

Mr. SIKORSKI. Then what happened? When was this issue raised again?

Mr. SANGER. When I came back on February the 6th-I'm sorry—on January the 6th and looked at the various papers and talked to Mr. Mason, I saw much more vividly than I had over the telephone what had occurred, so I started talking to Board members about it. And I raised with the Board members throughout the month of January my questions about

what had been done. The issue really came to a head in February. Mr. White was proposing to exercise his authority under that contract by hiring four high-level Stone & Webster people to come to TVA in high-level positions. Indeed, one of the Stone & Webster people was a director from the Stone & Webster Board of Directors. And in a discussion with the TVA Board and general manager and Bill Mason, we discussed whether the Board could validly determine that under those circumstances those Stone & Webster people would not have a substantial interest.

We had that discussion on February 12th. And as a result of that discussion, we wrote our February 13 memo; and on February 13, after receiving our memo, Director Freeman resigned. The other two Board members voted for the waiver.

Mr. SIKORSKI. Does TVA have any standard criteria by which to grant waivers under the conflict-of-interest statutes?

Mr. SANGER. No. It is really kind of a standard of what substantial or insubstantial means. When we looked at the legislative history, the legislative history shows that Congress was talking about interests that are de minimis or trifling or of no consequence. And it just seemed very troublesome to me, and I certainly wasn't in a position to advise the Board, that someone's interest was de minimis who was a member of that company's board of directors.

Mr. SIKORSKI. Did either of you suggest other contractual arrangements for White in your discussions with the TVA Board?

Mr. SANGER. Yes, we did.
Mr. SIKORSKI. That would have not run afoul of-

Mr. SANGER. Indeed, the first suggestion we had was not the one that was developed. Our first suggestion was a simple arrangement from TVA with TVA and Mr. White or even with Mr. White's company. Then there would have been no question about Stone & Webster or other contractors. He wouldn't have had any kind of relationship with them.

Mr. ŠIKORSKI. Mr. Sundquist asked me to ask you your involvement in the contract for MAC and Mr. Bibb.

Mr. SANGER. I am very happy that you asked me that, Mr. Chairman.

Mr. SIKORSKI. So we all understand it, that is a similar kind of contract for services outside of the civil service process or the normal employment process?

Mr. SANGER. Yes. It has a similarity and a dissimilarity. Mr. Bibb was an employee of a company called MAC. That is the acronym, I don't know

Mr. Mason. Management Analysis Company, of California.

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