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MEMORANDUM

TO: MEMBERS OF THE PUBLIC FROM: COA LEGAL STAFF DATE: SEPTEMBER 20, 2012 RE: CONFLICT OF INTEREST VIOLATIONS BY LAFE SOLOMON

This memorandum focuses on penalties associated with the determination that National Labor Relations Board (NLRB) Acting General Counsel Lafe Solomon was substantially involved in an enforcement matter for which he had a financial interest, in violation of federal law.1 On September 13, 2012, the NLRB Office of Inspector General (OIG) released a memorandum stating that facts found in its investigation substantiated allegations that “Mr. Solomon acted in a matter in which he had a financial interest.”2 Yet despite clear legal precedent to the contrary, the OIG believes that Mr. Solomon should be exonerated from liability even though he “participate[d] personally and substantially” in activity it otherwise acknowledges as illegal.3 This memo takes no position on the OIG’s review of relevant facts,4 particularly its finding that Lafe Solomon participated personally and substantially in a case involving Wal-Mart’s social media policy while knowing that he owned Wal-Mart stock valued at $15,000 or more,5 or the OIG’s legal analysis concerning the applicability of various federal regulations.6 Cause of Action instead takes issue with the OIG’s apparent defense of Lafe Solomon, and its refusal to recommend that he be criminally charged for his actions, despite acknowledging that Mr. Solomon was otherwise in violation of federal law.

I. The OIG erred in determining Lafe Solomon should receive no penalty for his actions

The OIG correctly states: “The legal analysis for determining whether the prohibition on acting in matters involving financial conflicts of interest has been violated is a strict liability standard.”7

1 18 U.S.C. § 208; Notwithstanding the Office of Inspector General’s reliance on several regulatory provisions, see e.g., 5 C.F.R.§§ 2640.103(b), 2640.202(a), mention is not made of the fact that those regulations interpret a criminal law, namely 18 U.S.C. § 208. Neither does the memo acknowledge that Solomon violated the criminal code. In fact, no mention is made of the criminal statute and the memo does not recommend that Solomon be charged. 2 U.S. Gov’t, Nat’l Labor Rel’s Bd., Off. Insp. Gen., Memorandum, Report of Investigation – OIG-I-475, (Sept. 13, 2012) at 1, available at http://edworkforce.house.gov/uploadedfiles/09-13-12_report_of_investigation_-_oig-i-475.pdf. (hereinafter “OIG Mem.”) 3 Id. at 9, 11. 4 See id. at 1-9. 5 Id. at 9 (“We find that Mr. Solomon did in fact participate personally and substantially, as the Acting General Counsel, in the case involving Wal-Mart's social media policy knowing that he owned Wal-Mart stock valued at $15,000.00 or more, and that the case involving Wal-Mart's social media policy would have a direct and predictable effect on that financial interest”). 6 Specifically, the OIG mentioned the following regulations: 5 C.F.R. § 2640.103(a)(1); 5 C.F.R. § 2640.103(a)(2); 5 C.F.R. § 2640.103(a)(3); 5 C.F.R. § 2640.103(b); 5 C.F.R. § 2640.202(a); 60 FR § 47208, 1995 WL 529702 (FR) (Page 14-15). 7 Id. at 11 (citing United States v. Hedges, 912 F.2d 1397, 1400-03 (11th Cir. 1990)). Hedges, which construes criminal code § 208 expressly states: “[W]e hold that Section 208(a) is a strict liability offense statute.” Hedges, 912 F.2d. at 1400.

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However, the OIG effectively modified this strict liability rule without citing any legal authority, claiming that, “aggravating, extenuating and mitigating circumstances are relevant in considering how to move forward and/or if corrective action is necessary.”8 The OIG perhaps attempts to customize the strict liability rule to bring the facts associated with Lafe Solomon’s conflict within the scope of the holding in United States v. Hedges, 912 F.2d 1397 (11th Cir. 1990).9

Any such attempt by OIG would be unavailing. In Hedges, a former Air Force officer sought advice from his Standards of Conduct officer, Lehman, concerning a potential conflict of interest. Id. at 1399-1400. Lehman worked closely with Hedges, reviewing and editing his drafts to satisfy conflicts of interest rules. Lehman, however, failed to inform Hedges that a particular negotiation may violate conflict of interest statutes and should be postponed; instead Hedges was advised that he complied “with all conflict of interest laws.” Id. at 1399-1400. When Hedges was charged criminally under 18 U.S.C. § 208, the court held that that section carried a strict liability standard for the elements in question, but that the lower court should have instructed the jury that entrapment by estoppel could nonetheless be a defense to the charges. 10 Id. at 1405-06. This case is not like Hedges. Here, Solomon realized that he may be in violation of federal law, while working with his Designated Agency Ethics Officer (DAEO), unlike Hedges who was unaware of any conflict and was, in fact, told that he complied “with all conflict of interest laws.” Moreover, Lafe Solomon requested a conflict waiver from the DAEO, which was denied because “Mr. Solomon did not make any compelling reason why the waiver should be granted,” where Hedges did not request a waiver or even know of the potential for a conflict. Thus, even if the holding in Hedges, that the jury should have been instructed regarding the entrapment defense, could help Solomon, the case would not apply to him because the facts are clearly distinguishable. Instead of holding Mr. Solomon accountable for his malfeasance, the OIG believes Mr. Solomon should be exonerated from liability because of defects in the ethics process at the NLRB.11 For instance, OIG implies that Solomon is not responsible for his actions, despite the safeguards that were in place: “That everything failed to stop Mr. Solomon is evidence of a complete failure of the NLRB’s standards of conduct program . . .”12 Independent of the fact that neither the DAEO’s “lack of communication” nor its “dysfunctional adversarial relationship” with Mr. Solomon fall within the general or individual exceptions permitted by law, 13 it is not the IG’s 8 OIG Mem. at 11. 9 OIG’s attempt in this regard seems rather strange given that , as explained further herein, Hedges does not stand for the proposition that “extenuating or mitigating circumstances” are relevant to the strict liability standard contained in § 208, but rather that the jury should have been instructed regarding the entrapment defense. 10 Defendant requested an instruction for entrapment by estoppel after both parties offered evidence supporting and rebutting the point, all of which was submitted to the jury. Id. at 1404. The district court refused to grant defendant his requested instruction, effectively stripping the jury of part of its fact-finding responsibility. 11 The OIG states in its remedial action section that “[t]he actions of the newly appointed DAEO would appear to set up an appropriate system to prevent future violations.” Id. at 14 (emphasis added). This indicates that the OIG is not interested in imposing any penalty for Mr. Solomon’s clear violation of a strict liability statute. 12 Id. at 12. 13 Id. at 13 (apparently reasoning that “lack of communication” and a “dysfunctional and adversarial relationship” are to be considered in determining whether corrective action should be taken for the violation.

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obligation or responsibility under the Inspector General Act to use taxpayer resources to present a legal defense for Mr. Solomon.14

II. OIG Should have Recommended Criminal Charges against Solomon 18 U.S.C. § 208 (emphasis added) makes it a crime for federal officials to “participate personally and substantially,” in any matter “in which, to his knowledge, he” or certain other family members, has a financial interest. The financial interest element is the only element of this crime that carries a knowledge requirement. In other words, the other elements of the crime are to be evaluated without regard to the mental state or knowledge of the accused.15 While specific intent to engage in a conflict is not required to commit a violation, 18 U.S.C. § 216 proscribes the penalty for Lafe Solomon’s violation of the law. Under 18 USC § 216, the DOJ can bring criminal or civil actions against Solomon (emphasis added):

(a) The punishment for an offense under section. . . 208. . . of this title is the following: (1) Whoever engages in the conduct constituting the offense shall be imprisoned for not more than one year or fined in the amount set forth in this title, or both. (2) Whoever willfully engages in the conduct constituting the offense shall be imprisoned for not more than five years or fined in the amount set forth in this title, or both.

III. While not a defense to Lafe Solomon’s crimes, the NLRB Ethics program requires

serious oversight and reform. The OIG made key finding concerning the need for ethics reform at the NLRB. As described in the OIG memo, there was a “[c]omplete failure of the NLRB's ethics program with regard to the operations of the Office of the General Counsel and that the environment at the NLRB in which this violation occurred was dysfunctional and adversarial.”16 Moreover, “[a] review of Mr. Solomon’s DAEO records disclosed six memorandums from the DAEO following the review of his financial disclosure forms warning Mr. Solomon to not participate in matters in which he had financial interest of $15,000 or more.”17 Additionally, the Director of Administration and DAEO knew “that there would be an assessment of her division because of matters that were brought to Mr. Solomon’s attention that, if true, would evidence mismanagement and could create liability for the Agency.”18 Indeed, such facts strongly point to the need for serious oversight and reform of the NLRB ethics program.

See 5 U.S.C. §§ 4, 6 (identifying the duties of the inspectors general as finding fact, not prosecuting offenders). 15 Hedges, 912 F.2d at 1401 (“We conclude that Congress has made it clear that Section 208(a) does not require a mental state for the first three elements while placing a mental state requirement on the last element.”) 16 OIG Mem, at11. 17 Id. at 8. 18 Id.

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President Obama’s first act in office was the passage of Executive Order 13490, which required his political appointees to sign an ethics pledge concerning lobbying activities while also seeking consensus from his appointees that they understood the federal ethics rules. In addition to this recent example at the NLRB, in the last several months, numerous examples have escalated showing the President’s appointees and agencies failing in their ethics duties. On September 14, 2012, Cause of Action issued a memorandum showing both criminal and ethical deficiencies at the U.S. Department of Health and Human Services (HHS) in relation toHHS Secretary and Cabinet Member Kathleen Sebelius’s having been found to have committed two violations of the Hatch Act, in addition to using her official position to support legislation.19 Kathleen Sebelius signed the ethics pledge required by E.O. 13490 and did not receive a waiver from the restrictions agreed to by signing the pledge. And yet on February 25, Secretary Sebelius, using her official position, engaged in direct lobbying when she supported the defeat of North Carolina’s Amendment One. Sebelius’s engaging in lobbying via her official position is inconsistent with the ethical promise she made to the President. When Martha Johnson, as GSA Administrator, condoned wasteful spending at the GSA, she acted against the spirit of the President’s ethics pledge as well as in violation of Executive Order13589, which required the promotion of efficient spending. Martha Johnson resigned from office. As Cause of Action reported in August, 2012, the General Services Administration (GSA)– itself plagued by scandal -- failed to fill a Designated Agency Ethics Officer (DAEO) position from 2007 to at least 2010.20 According to the Standards of Ethical Conduct for Employees of the Executive Branch, all agencies are required to have a DAEO to supply ethics advice to employees, as well as an Alternate Designated Agency Ethics Official (ADAEO). The GSA ADAEO spent less than one-quarter of her time on ethics-related duties. OGE requires that DAEOs spend at least half their time on ethics-related duties. Furthermore, GSA has eleven regional offices with no full- time ethics officials. Based on Cause of Action’s investigation into the Office of Government Ethics (OGE), CoA investigators learned that GSA's ethics program is principally administered by eleven regional ethics offices. Yet OGE reviewed only five of GSA's eleven regional offices for compliance with applicable laws, regulations, and policies. OGE, prior to its investigation of GSA, noted that “the existence of regional and field offices within an agency is identified as a risk factor on OGE's Resource Allocation Model (RAM). Yet in November 2010, OGE reported to GSA Inspector General Brian Miller that “GSA's ethics program appears to be effectively administered and in compliance with applicable laws, regulations, and policies.” OGE considered GSA to have “model practices” in place. OGE made no findings concerning GSA conference spending, even though GSA's alleged misfeasance of federal funds in its conference planning process occurred before and during OGE's stated investigation period.

19 See Cause of Action, Memorandum, Hatch Act Violations by HHS Sec. Kathleen Sebelius, (Sept. 14, 2012) at 1-3. 20 See Cause of Action, Memorandum, The Office of Government Ethics Failed to Prevent Scandal at the General Services Administration, (Aug. 2, 2012).

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The totality of these circumstances lead outside observers to conclude that there’s either a widespread failure of the OGE to appropriately enforce the ethics laws or the culture of ethics in the Executive Branch is far removed from the President’s initial promise to “change” the culture of Washington:

The Obama-Biden administration will give the Office of Governmental Ethics strong enforcement authority with the ability to make binding regulations, and it will work with inspectors general in all the federal agencies to enforce ethics rules, minimize waste and ensure federal officials are not using their offices for personal gain. The OGE will also be the clearinghouse of all public records relevant to ethics in the Executive Branch and place this information on its website. Finally, the OGE will promulgate rules and procedures to record all oral and in-person “lobbying contacts” between registered lobbyists and political appointees and make those records available to the public in a searchable computerized database.21

21 Change.gov, The Office of the President-Elect, available at http://change.gov/agenda/ethics_agenda/.