The Securities and Exchange Commission has broadened its investigation into the overseas business of Gray & Co., the Washington-based public relations and lobbying firm, to determine if there were any violations of federal securities and anti-foreign-bribery laws, according to a public disclosure by the firm.
The company also disclosed here today that it has set up a special reserve of about $300,000 to cover potential legal costs resulting from the SEC probe and other investigations of the firm being conducted by the Justice Department.
The federal scrutiny of the influential lobbying firm was triggered by recent disclosures that the company's vice chairman, former Organization of American States secretary-general Alejandro Orfila, had resigned over questions surrounding the alleged funneling of money from a Gray & Co. client in Madrid to a Spanish legislator. According to reports at the time, a Spanish utility company that had hired Gray paid $250,000 into a Gray & Co. bank account in Baltimore intended to be passed on to the legislator for his help in influencing energy legislation pending in the Spanish parliament. The utility company later denied it had any financial dealings with Gray.
Since initiating the inquiry into the Spanish incident last March, the SEC has expanded its probe to include "other contracts of the company involving foreign persons or entities with respect to compliance with the federal securities laws and Foreign Corrupt Practices Act," the firm stated in a recent proxy statement to shareholders.
Gray, which grossed $3.1 million in foreign business alone last year and which has represented such overseas clients as the governments of Turkey, Haiti and Japan, declined to identify the other foreign contracts being examined by the SEC. A Gray official said it was "routine" for the SEC to scrutinize all of the firm's foreign business in the course of an investigation of this nature. An SEC spokesman declined to comment.
Nevertheless, company President Robert K. Gray, speaking at his firm's first annual meeting since it went public last year, acknowledged that the investigations have been "costly to us," requiring the payment of large legal fees that have eaten substantially into the company's profits.
But Gray added that the firm "had met the challenge head on" by conducting its own internal inquiry and voluntarily turning information over to the SEC. He added later that "every single officer in our firm has had a two-hour session to be instructed by counsel on the Foreign Corrupt Practices Act."
The Foreign Corrupt Practices Act prohibits U.S. firms from paying bribes in their overseas business.
The extent to which the probes have hurt the company financially was a prime topic at the sparsely attended annual meeting. The company recently reported in a filing with the SEC that, as a result of the Spanish incident and other problems with its foreign contracts, it had spent $650,000 in legal fees and expenses during its fiscal year ending Feb. 28 -- a figure that exceeds the firm's total profits for the year of $559,242 on $18 million in revenue. Gray said that the $650,000 includes the reserve fund of about $300,000, so that, "financially, at the very least, that is behind us."
But Gray declined to provide any further details about the Spanish incident, saying that he is awaiting the results of his own internal inquiry.
He also declined to elaborate on recent discussions he has had with Ogilvy & Mather Worldwide, the New York-based advertising firm, and other advertising firms about a possible sale of the company.