Mr. Allen's Ethics
A new report raises questions.

Tuesday, October 10, 2006

After he left the Virginia governor's mansion in 1998 and before he entered the U.S. Senate in 2001, George F. Allen of Virginia did what out-of-office politicians often do: He tried to make some money. As it happens, a number of companies that he had assisted as a pro-business Republican governor returned the favor once he was a private citizen by inviting him to join their boards and furnishing him with potentially valuable stock options. One of them was a high-tech government contractor called Com-Net Ericsson, whose stock options translated into a one-time windfall for Mr. Allen worth $279,000 in 2001. As governor, Mr. Allen had helped Com-Net with its expansion plans.

It is not illegal for a governor to help out companies while in office and then join with them once he leaves -- though one can certainly question the ethics of doing so. However, it becomes a potentially graver problem when a U.S. senator owns options to buy a substantial quantity of a government contractor's stock -- and then goes to bat for that company with an arm of the federal government.

That's apparently what Mr. Allen did, in his first year in the Senate, when he intervened with the U.S. Army on behalf of a government contractor called Xybernaut Corp. According to the Associated Press, Mr. Allen joined Xybernaut's board shortly after leaving the governor's office; at the time he was urging the Army to help the firm, he still owned options to buy 110,000 shares of the company's stock. Had the Army heeded Mr. Allen's request and come down in Xybernaut's favor, the firm's stock price might well have gone up.

The Army did not give Xybernaut what it wanted and, according to Mr. Allen's aides, the senator offered no further help. Eventually, Mr. Allen sold his Xybernaut stock at a loss, he told the Associated Press. Still, his aides didn't dispute that Mr. Allen, in his official capacity, intervened on behalf of a firm in which he had a financial interest.

The AP also reported that for the past five years -- years in which he filed annual disclosure reports -- Mr. Allen did not report his stock options in a firm called Commonwealth Biotechnologies Inc., on whose board Mr. Allen also served. The senator's explanation is that he believed the options were worthless, since the option purchase price exceeded the stock's market value. That is beside the point. What is relevant is that Mr. Allen has a financial stake in Commonwealth, which as a government contractor may have business before Congress.

Mr. Allen says his financial dealings have been aboveboard. But in these cases they appear to reflect at best an ethical sloppiness.