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Republican Rep. Lewis and the Hedge Fund
The Congressman and the Hedge Fund
By Matt Kelley
USA Today
Thursday 19 January 2006
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The fundraiser, which took place July 7, 2003, and the subsequent vote illustrate the kind of relationship between congressman and contributor that's under increased scrutiny in the nation's capital.
A fellow California Republican, Rep. Randy "Duke" Cunningham, resigned in November after admitting he helped steer Pentagon contracts to two of four businessmen who paid him more than $2.4 million in bribes. Former top GOP lobbyist Jack Abramoff pleaded guilty last month to using gifts and political donations in a conspiracy to bribe public officials. Both investigations continue.
Nothing is illegal about government contractors giving political money to lawmakers who help them, unless both sides agree to exchange campaign donations for votes.
Lewis, 71, insists he did nothing improper. "I'm darn sensitive to make certain we keep arm's length from certain efforts" by political donors to influence legislation, Lewis said.
Both Lewis and the investment company, Cerberus Capital Management, benefited from the relationship. Eighteen months after the fundraiser and the House vote, Lewis won the chairmanship of the Appropriations Committee. He acknowledges that the fundraising efforts of Cerberus "played a very significant role" in winning the post. The ties between Cerberus and Lewis, a 14-term congressman from Redlands, Calif., have not been publicly examined before.
In the opinion of Larry Noble, executive director of the non-partisan Center for Responsive Politics in Washington, the timing of the fundraiser within days of a favorable vote "looks like influence buying." Noble is a former chief lawyer for the Federal Election Commission.
None of the people connected to Cerberus had ever given money to either Lewis or his political action committee before the fundraiser or the vote on the bill Lewis sponsored, a USA TODAY analysis of their political contributions shows.
Cerberus, its lawyers and lobbyists declined to comment, despite repeated requests over the past three months.
'Unstable' Program in Peril
Created in 1992, Cerberus is a hedge fund, a type of private investment group that's not regulated by the Securities and Exchange Commission. It's named after the mythical, three-headed dog guarding the gates of Hades.
Often called a "vulture fund," Cerberus invests mainly in companies in or on the verge of bankruptcy, buying those firms' bonds in the hopes of converting them into cash or stock in a revived company. In 2000, the company hired former vice president Dan Quayle as a top executive.
In 2003, Cerberus owned more than $140 million in stock and bonds of the bankrupt telecommunications giant WorldCom, financial records show. Its stake in the company, which had filed for bankruptcy protection the previous year, was large enough that a Cerberus executive joined the board of directors of MCI, the company's post-bankruptcy name.
MCI has been a major subcontractor since 2000 on an $8.8 billion project to build a secure computer network for the Navy and Marines. According to a House Appropriations Committee report in 2002, the program had "been unstable since its inception in 1999."
The committee report noted the program's cost overruns, schedule delays and management foul-ups in its report accompanying the 2003 defense spending bill, also sponsored by Lewis. That report called for more and better testing of the program before more computers were added to the network.
Lewis himself had criticized the Navy-Marine computer project in October 2002, telling The Washington Post he was not satisfied with its progress. He also said he was concerned about MCI's involvement. "When you have a big piece of the pie in trouble, it just gums up a process that already has great difficulty," he said.
Other members of Congress were pushing the federal government to ban MCI from any future contracts because of the $11 billion accounting scandal, which eventually landed former WorldCom CEO Bernie Ebbers a 25-year prison term. MCI now has about $2 billion in annual revenue from government contracts, and the Navy project remains one of its biggest.
'That's What Lobbyists Are For'
On May 16, 2003, the House Armed Services Committee voted to cut 10% of the Navy project's $1.6 billion budget for the upcoming year. Federal lobbying records show that two months earlier, Cerberus hired its first lobbyist, the powerhouse firm Patton Boggs.
The firm's lobbyists for Cerberus included Laurence Harris, a former FCC staffer who would join MCI's board of directors that August; retired Marine colonel John Garrett; and Marcus Dunn, a former aide to two members of the House Armed Services Committee.
Cerberus paid Patton Boggs $1.1 million for lobbying from 2003 to the middle of 2005, the last date that records are available. Separately, Cerberus hired former senator Jake Garn, a Utah Republican, as a lobbyist for $410,000 over the same period, lobbying records show.
In the early summer of 2003, Lewis said, he heard that "some business people in New York" were interested in giving money to his political action committee, the Future Leaders PAC. At the same time, the House Defense Appropriations subcommittee, which Lewis led and which oversees Pentagon spending, was considering the 2004 defense budget.
On June 16, the Defense Appropriations subcommittee preserved the money for the Navy-Marine Corps network. Lewis said he changed his mind and supported full funding for the program because the Navy maintained that management of the program had improved. On June 26, the full committee followed suit.
On July 7, Lewis traveled to New York for a fundraising dinner with Cerberus executives and their spouses, lawyers and business associates. They gave the Future Leaders PAC more than $110,000 that night and more in the following weeks, bringing the total to nearly $133,000 that month.
Lewis called the New York fundraising trip unusual, because he hates to travel to raise money. But he said the Navy project was never discussed. "At a meeting of that kind I do not discuss business, and we didn't at that one," Lewis said. "To this day, I don't know what their interest might be."
People who want favors from Congress usually don't talk about that business during fundraisers, Noble said. "They don't have to. That's what lobbyists are for."
Spokesmen for Patton Boggs and another law and lobbying firm representing Cerberus, New York-based Schulte Roth & Zabel, declined comment.
The day after the dinner, the House passed Lewis' defense spending bill that preserved all of the funding for the Navy project. And two months after receiving the Cerberus money, Lewis led House negotiators working out a House-Senate compromise on the Pentagon bill that finalized the $1.6 billion for the Navy project.
Fundraising Paves the Way
Meanwhile, Lewis was gearing up for the race to become chairman of the House Appropriations Committee - one of the most powerful jobs in Congress, with the clout to push pet projects or cut funding for programs that fall out of favor.
To win, Lewis had to impress House Republican leaders with his ability to raise money for other GOP candidates. Lewis said he lost his chairmanship of the Republican Conference, then the No. 3 post in the House Republican hierarchy, in January 1993 partially because of weak fundraising.
After that loss, Lewis focused on working his way up in the Appropriations Committee hierarchy. He helped produce budgets with millions of dollars earmarked for his district and pet projects of Cunningham and other Republicans.
Lewis' Future Leaders PAC gave $407,000 to 69 House candidates in the 2004 election. The Cerberus-related money was equal to nearly a third of that amount. In 2003, the PAC collected $522,725 - a quarter of it connected to Cerberus.
Lewis also got Cerberus to help with his fundraising for the National Republican Congressional Committee, the arm of the GOP that gives money to House candidates. Lewis said he invited Cerberus executives to an April 2004 NRCC fundraiser he chaired that included a speech by President Bush.
The NRCC got $70,000 in Cerberus-related donations during the first two weeks of April 2004, including $25,000 from Cerberus founder Stephen Feinberg, records show. "I had been doing this for over a dozen years, helping to raise money for our members," Lewis said. "Others (candidates for Appropriations chairman) began to be helpful with fundraising, but that had been a recent and newfound interest of theirs."
Fundraising power is particularly important in the case of the Appropriations Committee, which draws political donations to its members from companies wanting a piece of the hundreds of billions of dollars the committee oversees.
"Large contractors give lots of money to these members of Congress. They always have," said Tom Schatz of the watchdog group Citizens Against Government Waste, which had called for MCI to be banned from federal work. "That's the way things are done."
The Cerberus File
What: Cerberus is a type of hedge fund, a private investment pool for wealthy individuals and institutional investors. Hedge funds are not regulated by the Securities and Exchange Commission as mutual funds are.
Headquarters: Offices on Park Avenue in New York.
Founded: 1992 by Stephen Feinberg.
Assets: More than $16 billion, according to a 2005 Business Week profile.
Holdings: Military contractors Netco Government Services and IAP Worldwide Services; real estate developer LNR Property; Anchor Glass Container, a large bottle-maker; ANC Rental, the parent of Alamo and National car rental companies; Formica Corp.; sportswear-maker Fila Corp.
Following the Money
Oct. 6, 2000: The Navy awards the first of an estimated $8.8 billion in contracts on the Navy-Marine Corps Intranet project, designed to link the service's computers on a secure network.
June 24, 2002: House Appropriations Committee issues a report criticizing the intranet project and ordering more testing.
Oct. 2, 2002: The Washington Post publishes an article quoting Rep. Jerry Lewis as criticizing the project and the involvement of MCI/WorldCom, a prime subcontractor.
May 16, 2003: House Armed Services Committee approves a measure calling for $160 million in cuts to intranet project's 2004 budget.
June 16, 2003: Lewis' House Defense Appropriations Subcommittee approves a 2004 Pentagon spending bill that preserves the full $1.6 billion in funding for the intranet project.
June 26, 2003: House Appropriations Committee approves the 2004 Pentagon spending bill.
July 7, 2003: Lewis travels to New York for a fundraiser with executives from Cerberus and their spouses, business associates and lawyers, who donate more than $110,000 to Lewis' Future Leaders Political Action Committee.
July 8, 2003: House of Representatives approves the 2004 Pentagon spending bill.
July 22, 2003: Former vice president Dan Quayle and two others with Cerberus ties donate $12,500 to Future Leaders PAC.
July 30, 2003: Cerberus founder Stephen Feinberg and his wife, Gisela, give $10,000 to Future Leaders PAC, bringing the monthly total of Cerberus-related donations to nearly $133,000.
Sept. 16, 2003: House Speaker Dennis Hastert appoints Lewis to lead the House negotiators with the Senate over the final version of the 2004 Pentagon spending bill.
Sept. 24, 2003: Lewis brings the final version of the spending bill, which preserves the intranet project's funding, to the full House. The House approves it.
Sept. 30, 2003: President Bush signs the 2004 Pentagon spending bill into law.
April 1, 2004: Lewis hosts a fundraising dinner in Washington for the National Republican Congressional Committee. Lewis invites several Cerberus executives to attend. The NRCC gets $70,000 in Cerberus-related donations during the next two weeks.
Jan. 5, 2005: House Republican leaders pick Lewis as chairman of House Appropriations Committee.
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Sources: U.S. House records; Federal Election Commission; Pentagon records; public financial reports.
Cerberus Network Reaches Far
Cerberus Capital Management owns another major subcontractor on the Navy computer network project. Netco Government Services says it expects to take in nearly $1 billion from that contract.
Cerberus's involvement began in 2001, when it invested $100 million in WAM!Net, a nearly bankrupt computer networking services company based in Minnesota. The Cerberus money kept the company alive and gave Cerberus control.
In July 2003, Cerberus split WAM!Net in two, selling the company's commercial business to SAVVIS of St. Louis. Cerberus kept the remainder, formerly WAM!Net Government Services, and renamed it Netco Government Services in 2004. Netco has said it expects the Navy computer project to generate $750 million to $950 million in total revenue for the company over the life of the contract.
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