September 29 was a beautiful day at Lowes Island country club in Sterling, Virginia. The sky was sunny, there was a pleasant breeze, and the golf course's immaculate fairways hadn't suffered too much from the steady rain of the previous twenty-four hours. It was a big day at Lowes Island; the club was hosting the second annual Ronald H. Brown Memorial Golf Tournament. Several government officials came to play, as did lots of corporate bigwigs —and to top it off, Bill Clinton himself had agreed to show up for eighteen holes in the afternoon.
The president seemed in good spirits as he walked to the first tee. Sporting a bright red Stanford University cap in honor of his daughter's recent college choice, he kept a running conversation with playing partners Michael Brown, son of the late Ron Brown, and William Daley, the man who succeeded Brown as secretary of commerce. As usual, the press was not allowed to follow the president beyond the first hole, but it appeared that everyone enjoyed the round. And Clinton's presence no doubt helped raise a lot of money for the tournament's beneficiary, the Ronald H. Brown Memorial Foundation.
The pictures of Michael Brown playing golf with the president were far different from photos of Brown that had appeared in newspapers a month earlier. In those, he was seen walking out of the United States courthouse in Washington after pleading guilty to violating campaign finance laws. Brown admitted funneling illegal contributions to Senator Ted Kennedy's 1994 re-election campaign. Compared to other illegal donations uncovered in the ongoing campaign finance scandal, Brown's transgressions appeared smalltime: after making the legal maximum $2,000 contribution to Kennedy in his own name, Brown then arranged to reimburse two other people who had agreed to make additional $2,000 contributions in their own names.
The Justice Department could have pursued felony charges against Brown, but prosecutor Raymond Hulser chose instead to charge Brown with a misdemeanor. "This case does not involve a large amount of contributions," Hulser said in explaining his decision. "We were looking to do what's right as to his conduct and the amount of money involved." The misdemeanor charge, Hulser added, was "a very fair and appropriate resolution" of the case. Sentencing was set for November 21.
Brown did not speak to reporters as he left the courthouse. In a one-paragraph statement given out by his lawyer, he scarcely mentioned his wrongdoing. "I have today...taken personal responsibility for a single misdemeanor violation of a provision of the Federal Election Campaign Act," he began. Brown called his action a "mistake" before going on to invoke the memory of his father, who died last year in a plane crash in Croatia. "It is my sincere hope that my family and I can move forward and put the tragedy of the last year fully behind us," Brown said, "and I can pursue important personal objectives causes which meant a great deal to my father and continue to mean a great deal to my family and me."
Brown's guilty plea wasn't exactly front-page news; after all, the charge was a misdemeanor. But there was a much larger story in the plea agreement, one that most reporters either missed or decided not to emphasize. In making the plea deal, the Justice Department agreed to close the book on an extensive investigation into several large and questionable payments made to Michael Brown by Gene and Nora Lum, a couple of Democratic fundraisers who sought favor with Brown's father.
At the time of Ron Brown's death, an independent counsel was gathering evidence that might have led not only to charges against Ron Brown but also to charges that Michael Brown was a conduit for illegal money paid to his father by the Lums. Ron Brown's death brought the independent counsel investigation to an end, and the case against Michael Brown was transferred to the Justice Department. And now the Justice Department has decided not to pursue the matter any further. According to the plea agreement, "The United States agrees that it will not prosecute the defendant for any other conduct by the defendant of which the Public Integrity Section... [is] presently aware." Those words clear Michael Brown of any legal liability arising from the payoffs. It is a curious agreement, when one considers the evidence the Justice Department has chosen to discard.
Ron Brown’s Cash Crisis
The series of events that led to Michael Brown's guilty plea actually began several years earlier—on January 20, 1993, the day Bill Clinton was sworn in as president. Brown's father Ron, at that time the head of the Democratic National Committee, had accepted the president's offer to become secretary of commerce. But his new job would bring him money headaches—and, ultimately, an independent counsel investigation of his finances.
Ron Brown made a lot of money in the years before his move to the Commerce Department. According to financial disclosure statements he was required to file when he entered government, Brown earned about $580,000 in 1992 from his position as a partner at the law and lobbying firm of Patton, Boggs & Blow. His job as chairman of the DNC brought him another $89,000. He also netted between $90,000 and $40,000 from brokering a deal between the District of Columbia government and a pension-benefits firm. That gave him an income of at least $759,000 in 1992. On top of that, Brown reported as much as $500,000 more in a retirement account and cash-in-hand.
Upon taking office, Brown sold his stake in Patton, Boggs for an estimated $800,000. He also cashed in his Patton, Boggs retirement accounts for between $150,000 and $350,000. And he sold his interest in the pension-benefits firm for somewhere between $500,000 and $1,000,000. That left him with at least $1.4 million and perhaps as much as $2.1 million in cash. All that money would seem to indicate that Brown had the financial reserves to get through a few lean years of public service — a time when he would have to subsist on the $48,400 he was paid each year as secretary of commerce. But instead of using the money to supplement his Commerce Department salary, Brown poured almost all of it into mutual funds, many of which provided no regular income. He became investment-rich and cash-poor.
No spokesman for Brown or any member of the Brown family has ever spoken publicly about Brown's finances (for a more detailed version of the story, see "Ron Brown's Booty," TAS, June 1995). But one person who knew the situation was Nolanda Hill, a businesswoman who became Brown's intimate friend and partner in a corporation known as First International. In an interview with ABC last summer, Hill said she and Brown took a long hard look at his finances as he was about to become commerce secretary. "We sat down and looked at what his monthly expenses were versus what his known income was going to be," Hill said. "And he was, you know, $7,000 in the hole when he woke up on day one of any month."
So Ron Brown needed money. Hill told ABC that in his search for cash, Brown turned to a group of Vietnamese businessmen who allegedly offered him $700,000 to help lift trade restrictions on Vietnam. Hill said Brown backed out of the scheme only after he was tipped that the FBI was investigating.
Brown also turned to Hill herself. Although she had made him half-owner of First International, he did no work for the company. And besides that, First International had no successful, money-making ventures. Still, shortly after Brown joined the Commerce Department, First International began to send him "partnership distributions." On April 15, 1993, Brown received a $45,000 check. On July 21, he got another $45,000 check. And on October 15, another $45,000. In addition, Hill pumped money into Brown in other ways. In January 1994, she forgave him an $87,000 debt. In the summer of 1994 she paid off the $46,112 mortgage on Brown's vacation property in West Virginia. If one includes a few other miscellaneous payments, Hill gave Ron Brown a total of $412,955 between April 1993 and August 1994.
What is surprising is that it appears that not even Hill's money was enough for Brown. Because at the same time he was cashing his First International checks, the secretary of commerce was also getting close to Gene and Nora Lum. And that's where Brown's son Michael entered the picture.
Ron and Michael and Nora and Gene
As far as anyone can tell, Ron Brown first met the Lums, a husband-and-wife team who at times played the roles of Democratic activists, gadflies, and money-raisers, in Hawaii in late 1991. Gene Lum, an attorney, was working for the Honolulu city council at the time, and Nora Lum had a shop selling clothes to tourists on Waikiki Beach. It appears that the Lums attracted Brown's attention by promising to make a large contribution to the DNC. They got together face-to-face in December 1991, when Brown stopped over in Hawaii on his return from a Far Eastern trip. According to a report in the Honolulu Advertiser, Brown had dinner with the Lums at a ritzy Honolulu restaurant at about the same time Nora Lum sent $10,000 to the DNC. On the same day, two businesses connected to the Lums sent an additional $11,000 to the DNC.
Several months later, at the 1992 Democratic National Convention in New York, Ron Brown asked the Lums to move to California "to help promote the Democratic party to Asian-Americans there," according to a statement given by the Lums to the House Government Reform and Oversight Committee. (The Lums have not talked to the press, their lawyer Cono Namorato did not respond to several calls from TAS, and their former lawyer, Jonathan Siegfried, declined an interview request) Once in California, the Lums set up something called the Asian Pacific Advisory Council, or APAC, and began organizing fundraising events.
It appears that APAC became a West Coast arm of the Democratic National Committee—courtesy of Gene and Nora Lum. In their statement, the Lums say they used their own money to run the office and pay APAC's salaries. Their first fundraiser was a dinner in Los Angeles honoring John Huang. (According to the Washington Post, invitations were mailed from DNC headquarters in Washington and were signed by candidate Bill Clinton.) And the Lums weren't just giving through APAC; in their statement, they acknowledge picking up the tab for other party events. "DNC officials," the statement reads, "solicited these payments and were aware of the transactions."
APAC raised somewhere between $250,000 and $1,000,000 for the Democrats in 1992. Not surprisingly, the Lums became welcome visitors at the White House. They sat at Ron Brown's table at a Clinton inaugural dinner in January 1993. They attended a state dinner for the president of South Korea. And they attended several events related to Asian-Americans.
It would seem that the Lums had it made. Not only had they built a base for themselves in Califomia, they had successfully moved into national political circles. Success like that only made their next move all the more puzzling. In late 1993, the Lums moved to Oklahoma, buying the Gage Corporation, a small oil and gas company which they re-christened Dynamic Energy Resources. It was an odd transaction. The Lums had no experience in the oil and gas business. And it did not appear that they had the money to pull off a multi-million dollar transaction like the Gage purchase. They did have an interesting partner: Stuart Price, a Clinton campaign official in Oklahoma. In a 1995 lawsuit that concerned some of Dynamic's business dealings, Price testified that he was invited into the deal by a friend at the Democratic National Committee, but declined to elaborate.
Although it was not clear where the Lums got the money to buy the company, it is clear that they made a killing by purchasing Gage and then turning around and selling some of its gas contracts for far more than they had spent buying the company. And one of the first things the Lums did after making their fortune was to hire a new high-level executive: Michael Brown. Just like the Lums, the commerce secretary's son, then 29, had no experience at all in the oil-and-gas business. Brown was working as a lobbyist in the Washington office of the Miami firm of Greenberg, Traurig, Hoffinan, Lipoff, Rosen & Quentel (the "Rosen" refers to Marvin Rosen, former finance chairman of the DNC).
Although it is hard to say what skills he brought to Dynamic Energy, Brown was generously compensated by the Lums. First, they placed him on the board of directors, giving him five percent of the company's stock—at the time valued at $500,000. Then they gave him $7,500 a month in "consulting fees." Then they tossed in about $800 a month for expenses. And then they bought Brown a membership at the ultra-exclusive Robert Trent Jones Golf Club outside Washington; that cost another $60,000.
To accommodate Brown, the Lums also opened a Dynamic Energy office in Washington. According to Stuart Price, the Lums apparently thought Brown was going to help them win big money from the federal government. "They thought they were going to qualify for minority contracts," Price testified in the 1995 lawsuit.
But there was a problem. "He knew nothing about gas contracts," says Mike McAdams, a former vice-president of Gage who stayed on during the first few months of Dynamic Energy Resources. McAdams was not aware that Brown did anything for Dynamic. "When I was there, he was never in the office," McAdams recalls. "He used to call in a lot, nothing important." McAdams says he knew Brown was the commerce secretary's son; McAdams was also under the impression that Nora Lum in some way worked for Ron Brown. He knew for a fact that some Washington power players seemed strangely interested in the little Oklahoma oil and gas company. McAdams says he took one call from then-White House aide George Stephanopoulos, and another from Melinda Yee, a top Commerce Department official (whose mother, Helen, had also been placed on the Dynamic board by the Lums).
Judging by his testimony in the 1995 lawsuit, Stuart Price agreed with Mike McAdams that Brown did not do much for Dynamic Energy. Price and his wife sued the Lums after the business split up on bitter terms. Among other things, they charged that the Lums "wrongfully caused the corporation to pay consulting fees, expenses, and other benefits to or for the benefit of themselves, their friends and relatives, and Michael Brown, for which the corporation did not receive value." In a deposition for the suit, Price was more blunt. "You know, hey, the Lums spend their money," Price testified, "and, you know, share their interests like drunken sailors."
But just because Michael Brown appeared to perform no work for Dynamic Energy does not mean that he had no value to the Lums. When Price was asked why Brown was hired, his answer was straightforward:
He absolutely is there for them to gain influence with the Department of Commerce, and that's it, and they think he's a buffoon, and their discussions with me is that because they want influence, and that's why he is getting paid, and that's why they gave him five percent of the stock for free.
What did Price mean by "gain influence" with Secretary Brown? Certainly it could mean that the Lums were simply paying off Michael Brown to win favor with his father. But there is evidence that at the time the Lums began to pay Michael Brown, he in turn began to give money to his father. Various attorneys representing the Brown family have explained the money transfers by saying that Michael was simply returning some of the generosity his father had shown him through the years. One attorney said that Michael may have been repaying his father for sending him to law school; another mentioned something about a repayment for a Washington condominium. All have denied, however, that the money was a payoff from the Lums to Ron Brown. But Nolanda Hill —who was certainly in a position to know a lot about Ron Brown—told a different story during her interview with ABC last June, when reporter Brian Ross asked her where the money went:
Hill: I know that Ron received money that had been paid to Michael.
Ross: From the Lums at Dynamic Energy?
Ross: Why would the son give the father money?
Hill: Well, the official version from [Brown lawyer] Reid Weingarten is to pay back some of his law school fees, which I fought with Ron about and told him that was the dumbest thing I ever heard. And I even told Reid that that was stupid to say that.
Ross: What did Ron tell you was going on?
Hill: Ron needed money to pay his taxes.
ABC then cut to Reid Weingarten:
Weingarten: Let's start with the facts. It's always a good place to start. The Lums never paid off Ron Brown. And Ron Brown never did anything for the Lums.
Ross: When pressed, Weingarten said just what Nolanda Hill predicted he would.
Weingarten: Ron was an incredibly generous dad. When Michael came of age —when Michael started kicking in professionally, Michael would be in a position to repay some of the responsibilities that Ron assumed.
Ross: Hill says she tried to get Brown to use a different story.
Hill: I talked to Ron about this, and I said, you know, "Why don't you say, 'There's nothing I can do for the Lums as Secretary of Commerce?'" And he said, "But that's not true. I don't want to say that, because that's not true." And I said, "Well, it's not true that this all of a sudden is to pay you back for college, either." He said, "Well, nobody can prove that."
Through her attorney, Nolanda Hill declined to be interviewed for this article. But Michael Brown's lawyer, William Taylor III, did speak to TAS. Taylor said his client did receive money from the Lums, and he did give money to his father. 'We have acknowledged that Michael paid some money to his father at a point in time," Taylor said. "It wasn't at the time that people thought it was, and it wasn't in the amount that people thought it was." Taylor confirmed that the payment from Michael to Ron Brown occurred after Michael began to receive money from the Lums. When asked whether Michael Brown passed on the money from the Lums to his father, Taylor responded, "Well, dollars bills don't have names on them. It was Michael's money." Taylor vigorously denied that Michael Brown had been a part of any scheme to serve as a conduit for money between the Lums and Ron Brown.
18 USC 201(c)
In May 1995, Attorney General Janet Reno recommended that an independent counsel be appointed to investigate Ron Brown's finances. Daniel Pearson, the man chosen for the job, at first focused on the relationship between Brown and Nolanda Hill, but later widened his probe to include the Lums and Michael Brown.
Pearson's investigators had traveled to Oklahoma, California, and Hawaii by the time Ron Brown was killed in April 1996. They had gathered information not only on Brown, but also on the Lums and others. Brown's death left Pearson in a quandary. “We considered the question as to whether we should or should not continue," Pearson said in an interview with TAS. He and his staff eventually concluded that "the basic justification of our being was gone," so Pearson asked the Justice Department to take over the investigation of Hill, the Lums, and Michael Brown.
Once at the Justice Department, the Lum case was eventually transferred to the newly formed campaign finance task force. Before Michael Brown pleaded guilty to one misdemeanor charge, the Lums pleaded guilty to felony charges of funneling about $50,000 into the campaigns of both Ted Kennedy and Stuart Price, whom they supported in a 1994 bid for Congress (before their angry split). The Lums were later sentenced to 10 months' confinement and a $60,000 fine. The two cases were the first—and so far, the only—cases to be tried by the campaign finance task force.
But given the history of Michael Brown and the Lums, it seems odd that the case was confined to the campaign finance angle. The plea bargain was extraordinary not because Michael Brown should have been more severely punished for the $4,000 in illegal donations; that was not a terribly serious offense. It was extraordinary because Brown was not in any way accused of wrongdoing for the payments that allegedly went through him to his father. If one looks at the law and recent case histories, it is clear that he very well could have been.
The law in question is 18 USC 201(c), the statute regarding so-called illegal gratuities. An illegal gratuity occurs when a public official accepts money—or some other thing of value —given to him because of his public office. Such a payoff is distinctly different from bribery. In a bribe, a public official performs some act or promises to perform some act in exchange for money; prosecutors have to prove that there was a quid pro quo involved for a payoff to be deemed a bribe. But with an illegal gratuity, such proof is not required.
The distinction between a bribe and an illegal gratuity was strikingly illustrated recently in the case of former agriculture secretary Mike Espy. In late August, independent counsel Donald Smaltz announced that Espy had been indicted on thirty-nine counts, many of them involving his alleged acceptance of gifts from companies regulated by the Department of Agriculture. In a news conference after the indictment was handed up, Smaltz explained his action in words that surely struck fear in the hearts of officials throughout the government.
Even if Espy accepted the gifts, one reporter wanted to know, didn't Smaltz have to prove that some sort of quid pro quo was involved? No, Smaltz said. Then another reporter asked the same question. Although frequently interrupted by the sounds of airplanes roaring overhead, Smaltz patiently tried to explain. "We do not charge a quid pro quo," he said. "We don't have to under the gratuity statute, 18 USC 201(c). A quid pro quo is not required. A quid pro quo is required in a bribery situation, but not a gratuities offense."
The reporters still had trouble getting it. One said, "If there was no quid pro quo, and he has reimbursed the government and been fired from his job, what is the purpose—the public purpose if you'd just explain it—in going ahead with the indictment...?" Another jumped in: "Do you have any evidence," he asked, "that any policies of the Agriculture Department were in any way affected by the gratuities or other payments?" Smaltz patiently repeated that he did not have to prove that to win a conviction of Espy. "We have not charged a quid pro quo," he repeated.
The reporters never did get it, even though Smaltz explained it over and over. Perhaps they would have understood better if they had read a federal judge's reasoning in another Smaltz case, United States of America v. Sun-Diamond Growers of California. Sun-Diamond is the agricultural giant convicted of giving sports tickets, luggage, meals, and other gifts to Espy. The issue in that case, wrote U.S. District Judge Ricardo Urbina, was whether the illegal gratuity statute required prosecutors to prove that the gifts to the public official were given in exchange for some official act. Urbina reviewed the history of similar cases and concluded that no such connection was required.
Urbina cited an Iran-contra case, United States v. Secord (1989). To prove an illegal gratuity, the judge in that case ruled, prosecutors must prove that the giver of the gratuity had some sort of business within the purview of the official, and that the gratuity had been given "simply because of...the official's position, in appreciation of the relationship, or in anticipation of its continuation." The Secord case goes on to say that, "The government need not prove that the gratuity was given in exchange for any specific official act; there need be no 'quid pro quo.'"
Urbina cited several other cases to support his argument. His ruling appears to signal a trend to read the law very strictly. "There's been a very gradual transformation of the statute," says Samuel Buffone, a Washington lawyer who is an expert on gratuity law. Rarely used ten or fifteen years ago, Buffone says, "it was dusted off in Abscam, and ever since, the courts have been sorting out what the intent of the statute is. Sun-Diamond is the furthest the statute has been taken."
Certainly a decision like the one in the Espy case would have had serious implications for Ron Brown. After all, most businesses in some way or another fall under the jurisdiction of the Commerce Department; certainly Brown promoted himself as a man who represented all American business. The problem was, he was receiving money from businesspeople: an unspecified amount from the Lums, and more than $400,000 from Nolanda Hill. Under 18 USC 201(c), those payments look like illegal gratuities.
But where does that leave Michael Brown? Experts believe that would depend on whether he was a knowing conduit for the money or an innocent bag-man. It might be hard to argue the latter; Michael Brown was surely aware that he was being paid large amounts of money in return for almost no services. And he knew he was giving money to his father. It seems possible to argue that Michael Brown was either an accessory to the illegal gratuity, or part of a conspiracy to allow his father to accept an illegal gratuity. Of course, prosecuting Brown would likely have meant an ugly legal proceeding that posthumously exposed the financial dealings of Ron Brown. With the plea bargain, that issue is moot.
Today Michael Brown is working at his father's old firm, Patton, Boggs, where he holds the title of "international trade and public policy specialist." It appears that his guilty plea has done him very little damage. Not only is he in the good graces of the White House— a prominent golf partner of the president's—he also is president and CEO of the Ronald H. Brown Memorial Foundation.
But his case raises serious questions about the political independence of the Clinton Justice Department. For example, prosecutor Raymond Hulser, the man who went easy on Brown, is also the man who unsuccessfully prosecuted fired White House travel office director Billy Dale. Hulser seemed a different man in that case; filled with zeal, he argued that Dale was a man consumed by greed—so much so that he embezzled money during his years in the White House. "This case isn't about whether he needed the money," Hulser told the jury during closing arguments. "He took the money because he wanted the money."
One might even imagine Hulser applying those very words to Michael Brown. But he didn't. Maybe Hulser had good reason — one never publicly revealed—to close the books on Brown's role in the Lums' case (Hulser declined an interview request from TAS). But it is hard to dispute that Hulser's actions had the effect of sweeping an important story of alleged corruption in government under the rug. And it is likely to stay under the rug; unlike an independent counsel investigation, in which the counsel must write a final report outlining his discoveries, the Justice Department is under no obligation to reveal anything more about Michael Brown.
There remains one chance that at least some new information about the case will find its way to the public. On October 8, Dan Burton's House Government Reform and Oversight Committee released a letter in which the Lums offered to testify about a wide range of issues in exchange for immunity. But even with Republican support, that might not happen; Democrats could block the plan and keep the Lums silent.
So there it is. Once again the Justice Department has chosen a course of action that, no matter what its intent, has had the effect of suppressing potentially damaging information about an important figure in the Clinton administration. When critics hear the attorney general insist that the department can fairly investigate the campaign finance scandal, they should remember Michael Brown's deal.