Public records show state Rep. Dennis Flannigan apparently violated state campaign finance laws by failing to disclose his stake in a company that benefited from public funding he helped secure.
The Tacoma Democrat told The News Tribune he owns 4,000 shares in Hythiam Inc., the company that licenses the Prometa drug-treatment program that has come under fire in Pierce County. That stock is worth nearly $22,000 today.
Flannigan did not disclose the stock in a financial affairs statement filed with the state Public Disclosure Commission earlier this year.
“I am woefully awkward about that stuff,” Flannigan said, admitting the failure to disclose the stock holding. “If there’s a pin you can stick in Dennis Flannigan, that one is real.”
Meanwhile, Pierce County Executive John Ladenburg acknowledged he had a bigger stake in Hythiam than he initially stated. The executive now says he held $2,700 worth of Hythiam stock in three accounts – about three times the amount he initially said he bought. He said he sold the shares at a loss last month.
The latest revelations about Hythiam stock ownership come amid County Council scrutiny of the Prometa treatment program.
The council and executive agreed in April to spend $400,000 to try the program on offenders in the county’s drug court. But the council suspended funding Oct. 23 after a preliminary report by the county audit staff found little evidence that Prometa is effective.
Flannigan, Ladenburg and other Pierce County lawmakers helped secure a total of $900,000 in state and local funding for Prometa. Both Ladenburg and Flannigan owned stock in Hythiam, which has touted the success of Prometa in Pierce County in financial reports to investors.
In addition to Flannigan and Ladenburg, Terree Schmidt-Whelan, executive director of the nonprofit group that administers the Prometa treatment for Pierce County, has said she owned 100 shares of Hythiam stock.
Since the council suspended Prometa funding, the value of the stock has declined 37 percent to $5.40 a share as of Monday.
State law requires elected officials to report financial assets annually to the Public Disclosure Commission. The law is intended to give the public information about financial interests that might influence the conduct of elected officials.
FLANNIGAN ADMITS FAILURE TO FILE
Flannigan admitted he did not disclose his stake in Hythiam in his 2007 financial affairs statement, which was filed in April.
“I didn’t do it, and I am terribly sloppy on all those,” Flannigan said. “My history of sloppiness is 20 years old. But that’s the way it is.”
Additionally, in June the Public Disclosure Commission ruled that Flannigan failed to file a report on campaign receipts and expenditures on time before the November 2006 election. The commission fined Flannigan $50, but suspended the fine on the condition he remain in compliance with the law.
In 1994 and 1996, while a member of the County Council, Flannigan failed to file financial affairs statements. For the 1994 incident he paid a $100 fine. In 1996 the commission fined him $200, but suspended the fine.
Also in 1996, the commission staff directed Flannigan to reimburse his campaign $100 for an improper donation to another campaign.
Flannigan said he will revise his latest disclosure form to reflect his ownership of Hythiam stock.
PDC spokeswoman Lori Anderson said failing to report an asset can result in a fine of up to $1,700 for a single violation. But she said fines are rare, and most errors are reported by the elected officials or candidates themselves.
Anderson said there’s no specific time requirement for filing an amended disclosure form. But she said the commission wants officials to amend their reports as quickly as possible after they realize they’ve omitted something.
Flannigan said he bought 4,000 shares of Hythiam for $7 a share in the summer of 2006.
He said he checked with an attorney for the state House of Representatives before buying the stock and was told it would be legal. Flannigan said he voted on the overall $33.4 billion, two-year state operating budget that included Prometa funding but decided he should not vote on a specific Prometa funding measure.
Like Ladenburg, Flannigan said his efforts to obtain public funding for Prometa predated his stock purchase.
He said he bought the stock after hearing stories about its effectiveness in treating drug addicts.
“I was inspired to see something work,” Flannigan said. “I watched how everything else didn’t seem to work. If I had to invest my money in Prometa or prisons, I’d still go with Prometa.”
Flannigan said he also saw “a chance I could put my grandkids through school if (the stock) happened to hit a home run. It hasn’t hit a home run yet.”
LADENBURG AMENDS DISCLOSURE FORM
Meanwhile, Ladenburg acknowledged a bigger stake in Hythiam than he previously stated.
Last month, Ladenburg told The News Tribune he bought 100 shares of Hythiam stock about a year ago for $9 per share and sold it recently for $8.50 per share. That would put the value of his stock when he bought it at $900.
However, Ladenburg reported to the Public Disclosure Commission in April the value of his Hythiam stock was between $3,000 and $14,999.
When asked about the discrepancy, Ladenburg said he reviewed his Hythiam stock holdings and found they had been incorrectly reported on his financial affairs statement.
On Friday, Ladenburg said he bought $2,712 in Hythiam stock in May 2006 and sold it last month for $2,395 – a loss of $317. He said the stock was spread among three accounts owned by himself and his wife, Tacoma City Councilwoman Connie Ladenburg.
John Ladenburg sent a letter Friday to the Public Disclosure Commission to correct the error on his financial affairs statement. State law does not require public officials to report the exact value of financial assets. Instead, they report a range of the asset’s worth. The law also does not require officials to report such details as when they buy and sell stock.
Ladenburg said his Hythiam stock did not influence his efforts to secure funding for Prometa.
“I would note that even if the stock had made a remarkable 20 percent gain, we would have earned around $500,” Ladenburg wrote. “For the Tribune to insinuate I would alter my judgment for this amount, or any amount for that matter, is insulting.”
LADENBURG’S JUDGMENT QUESTIONED
Ladenburg said his stake in the company is considered “remote” under state law.
The state’s code of ethics for municipal officers prohibits officials from having a beneficial interest in a contract under the officer’s supervision. However, there’s an exception for a “remote” interest, which includes holding less than 1 percent of shares in the company receiving the contract.
Ladenburg owned far less than 1 percent of Hythiam’s 44.6 million outstanding shares. However, the law also states that even remote interests are prohibited “if the officer influences or attempts to influence any other officer of the municipality … to enter into the contract.”
Some on the County Council questioned Ladenburg’s judgment in buying the Hythiam stock.
Councilman Calvin Goings, D-Puyallup, said last week the executive showed “incredibly poor judgment.”
Council Chairman Terry Lee, R-Gig Harbor, said Ladenburg’s stock appeared to be “small potatoes” and said he considered buying Hythiam stock himself. But he added: “It felt like a conflict to me, to be in a role of benefitting and approving (county) appropriations” for Prometa.
Prometa is a treatment program that uses generic drugs to reduce cravings in addicts. A county report released Oct. 23 found little evidence that Prometa is as effective as Hythiam claims.
Based on that report, the County Council voted to cut off the remaining $150,000 in county funding in the 2007 budget. The council will reconsider Prometa funding at a meeting Nov. 14.
Candidates for Pierce County offices will soon be required to file forms outlining their personal financial holdings with the county auditor’s office.
The county’s ethics code already requires candidates and elected officials to submit the forms to the office. But Auditor Pat McCarthy said the office has not required the forms to be submitted for at least 14 years. She said she was unaware of the ethics code requirement until asked about it by a News Tribune reporter.
State law requires candidates for public office to disclose certain financial information – including income, real estate holdings, stocks and debts – to the state Public Disclosure Commission. Those forms are public records but are not available on the agency’s Web site. Copies of financial disclosures can be requested via phone or e-mail. They also can be viewed at the commission office in Olympia.
A Pierce County ethics code provision dating to 1982 also requires county candidates and elected officials to file financial disclosure forms at the auditor’s office. However, McCarthy’s research shows the office has not asked candidates to file disclosures locally since at least 1993. Instead, the office informs candidates they must file financial disclosures with the state.
McCarthy said the blame should fall on her office, not the candidates.
“We’ve been saying, ‘it goes straight to Olympia,’ ” she said.
Since learning of the oversight, McCarthy’s office has obtained from the state commission current financial disclosure forms for county executive, assessor-treasurer, County Council, auditor and prosecuting attorney. They are available for public viewing at the auditor’s office.
McCarthy said she would also begin informing county elected officials and candidates they must file financial disclosures with her office in addition to filing with the state.
David Wickert: 253-274-7341