Secretary of the Navy John F. Lehman Jr. yesterday denied allegations of a possible conflict of interest stemming from his former defense consulting business. He said published reports suggesting that he could benefit in the future because of the way he divested himself from the firm are "simply false."
Lehman made his remarks at a Pentagon news conference called within hours of a report in The New York Times that cited public documents and said Lehman did not sever all connection with Abington Corp., which he headed.
The Office of Government Ethics said yesterday that it is "making an inquiry into Secretary Lehman's relationship with Abington."
David Scott, acting director of the office, said in a telephone interview that, "Information has come to us that at least questions his relations to Abington. Is it as set forth on the forms" that Lehman filed with the ethics office when he came to work for the Reagan administration in early 1981 "or is it something else? That's what the investigation is about," Scott said.
Scott said that "it is a complicated situation," and that inquiries setting the investigation in motion were not only from reporters. "We have gotten information from a couple of people . . . who provided information that raised questions," he said.
Various laws require people coming to work for the government to divest themselves of investments that could cause conflicts of interest. These laws are meant to allow the government to bring in experienced people yet protect the public interest.
The situation with Abington is probably unusual, however, because the small consulting firm had some of the nation's biggest defense contractors, including Northrop and Boeing, as customers, and virtually all of its principal figures wound up in the Reagan administration.
Lehman, who owned the firm, became Navy secretary. His brother, Joseph, who was a salaried employe, became a deputy director of the Arms Control and Disarmament Agency. Richard Perle, another top salaried officer, became an assistant secretary of defense.
In responding to the article yesterday, Lehman said, "I am quite confident that there is no conflict of interest in any way involved in the transaction . . . . This divestiture was done with the full consultation of the general counsel of the Navy and in full discussion with the Office of Government Ethics and the Senate Armed Services Committee."
As Lehman explained it, he had 90 days to divest himself of Abington beginning in January, 1981, as he took office. He said that he initially tried to sell the firm but that when Perle and others also departed, the business was apparently less salable.
So, under advice "by counsel and my financial advisers," he said, he sold the overseas operating rights of the firm, which he said had done most of its business abroad, to a British peer, Lord Chalfont, for $60,000. Lehman said he retained the firm's name in this country as a holding company for personal assets with his wife as president.
Lehman said that during divestiture the Navy's general counsel had distributed throughout the Pentagon a list of Lehman's business clients and said the secretary would not participate in decisions affecting these firms.
By April, when the divestiture was complete, a new memo was distributed saying that these ties were severed and that Lehman would play his full role as secretary.
Lehman said that all documents, except the one detailing the sale to Lord Chalfont, were on file with government offices and that he has sent that sale document to the ethics office.
The article reported an interview with Chalfont in which Chalfont said he gave Lehman a verbal option to repurchase Abington's overseas operation after Lehman leaves the Pentagon.
Yesterday, Lehman said that this was in error and that "there is no option expressed or implied in the contract with Chalfont" and "there is no relationship or any future understandings or any possibility for me to gain in the future from Abington's international operations."
At another point, however, Lehman said that there is a "possibility" of some future association, but that there was no deal on that.
He said he has known Chalfont for 20 years but never discusses business with him.
Lehman pointed out that, aside from his efforts at divestiture, Title 18 of the U.S. Code prohibits officials, after leaving government, from engaging in business for a minimum of two years on matters in which they participated while in government and involves virtually lifetime debarment from programs over which they exercised authority.
This would involve, for example, the Navy's controversial F18 fighter for which Northrop is a major subcontractor. Lehman recently wrote to the Spanish government to help persuade that government to buy the F18.
Lehman said that The Times' article contained one accurate allegation and that "the rest is all innuendo." He acknowledged that his wife had "made a mistake" on corporate records filed this year with the District of Columbia. The records show that Abington is described as a consulting firm, not a personal holding company.
"I will have sharp words with my wife about that," Lehman said, adding that she has instructed her lawyer to amend that description.
Lehman said that he wanted to keep the name of Abington because the firm had built a good reputation and that he might want to return to the consulting business outside the defense area when he leaves office.
Asked about the situation yesterday, White House deputy press secretary Larry Speakes said, "I don't know anything about it. We'll have to wait and see if there's any conflict to it or not."