[Congressional Record Volume 140, Number 47 (Tuesday, April 26, 1994)] [Extensions of Remarks] [Page E] From the Congressional Record Online through the Government Printing Office [www.gpo.gov] [Congressional Record: April 26, 1994] From the Congressional Record Online via GPO Access [wais.access.gpo.gov] CORRESPONDENCE RELATING TO THE CLINTON'S PARTICIPATION IN THE VALUEPARTNERS I HEDGE FUND ______ HON. BOB LIVINGSTON of louisiana in the house of representatives Tuesday, April 26, 1994 Mr. LIVINGSTON. Mr. Speaker, lots of press attention has been given the exchange of correspondence relating to the Clinton's participation in the ValuePartners I hedge fund. Some of these reports have been inaccurate. So in order to clarify the record, Congressman George Gekas and Congressman Chris Cox join me to introduce into the Record correspondence between us and the Office of Government Ethics. Congress of the United States, Washington, DC, March 17, 1994. Mr. Stephen D. Potts, Director, U.S. Office of Governmental Ethics, Washington, DC. Dear Mr. Potts: This letter is to bring to your attention certain relevant disclosures made by William Smith, the general partner of ValuePartners I, which have been published since our March 9, 1994 letter to you. 1. During a CNBC interview on March 11, 1994, Mr. Smith stated that he advised Bill and Hillary Rodham Clinton to form a blind trust during 1992. (As recounted in our previous letter, this step was not taken until July 1993.) 2. During the same broadcast, Mr. Smith acknowledged that certain of the stock issues in which Ms. Rodham Clinton's partnership took short positions were so-called ``penny stocks''--those with share prices so low that short selling can unduly affect market prices. 3. Mr. Smith also stated in the CNBC interview that James McDougal is not, and has not ever been, one of his clients. The information to the contrary provided in a footnote to our earlier letter was based upon a McDougal balance sheet, obtained from the FDIC, that listed three investments as ``Value Partnership.'' This was apparently mere coincidence and should, therefore, be disregarded. Mr. Smith also stated that he ceased reporting specific short positions to the partners in May 1992. In fact, however, the Form 278 filed by President Clinton on May 14, 1993, included a report from Smith Capital listing specific short sales as of December 31, 1992. 4. During the same CNBC broadcast, Mr. Smith expressed his willingness to provide information. While we have responded by making the enclosed request for documents of Mr. Smith, it is far more appropriate for OGE to be conducting this aspect of the investigation. We therefore renew our request that you do so. An editorial in the March 21, 1994 Newsweek opined that ``it's hard to imagine that Hillary knew one of her investment funds was selling a few health care stocks short before her attack on drug companies. Besides, the fund lost more on health stocks it held.'' We note that both of these alleged ``facts'' are not in evidence. To the contrary, the content of the six quarterly reports provided by Mr. Smith to Ms. Rodham Clinton, between July 1992 and July 1993, the telephone conversations between Mr. Smith and Ms. Rodham Clinton, and her staff, and similar evidence all will establish whether she had knowledge of her financial interest in these transactions for purposes of Section 208. This is precisely why investigation is required. Likewise, it is impossible to determine the extent of the partnership's gains and losses from its apparently aggressive short selling activities on only three days. Moreover, Section 208 of the Ethics in Government Act concerns only whether one has a financial interest. For these reasons, we look forward to your investigatory action to help determine the several issues of fact and law we have raised. Maintaining respect for the nation's ethics laws requires their observance by our highest elected officials. Based upon the best evidence at this date, it appears the issue of Ms. Rodham Clinton's compliance with Section 208 is in doubt. Once again, thank you for your prompt attention. Sincerely, Robert Livingston, Member of Congress. George Gekas, Member of Congress. Christopher Cox, Member of Congress. ____ Congress of the United States, House of Representatives, Washington, DC, March 11, 1994. Mr. William Smith Smith Capital Management, Little Rock, AR. Dear Mr. Smith: On CNBC today, you stated you would have been pleased to provide all relevant information concerning ValuePartners I to ensure full disclosure of the facts and circumstances surrounding Hillary Rodham Clinton's partnership therein. We accept that as an offer of continuing support, and ask that you provide the following: (a) The names and addresses of all owners of a beneficial interest in ValuePartners I during the period beginning on formation of the partnership and ending on the date hereof, together with the proportionate partnership interests held by such persons throughout the period. (b) Details of each short sale by ValuePartners I during the period, including issuer, price, gain or loss, fees, and commissions and other costs associated therewith. (c) Details of each other investment by ValuePartners I during the period. (d) Copies of all reports provided to partners in ValuePartners I during the period, together with all documents and other evidence (including notes, phone logs, diaries, and phone bills) of telephone calls or other communications between you and either or both Hillary Rodham Clinton and William J. Clinton, or their agents, during the period. (e) Copies of all financial statements of ValuePartners I (including unaudited statements for internal use, if any) prepared during the period. (f) All correspondence and other documents between you and either or both Hillary Rodham Clinton and William J. Clinton, or their agents, during the period. (g) Details of all short sales during the period for the beneficial interest of either or both Hillary Rodham Clinton and William J. Clinton caused, obtained, or arranged for by you, or of which you are aware, whether or not in connection with ValuePartners I. (h) Details of all partnership distributions from ValuePartners I in which either or both Hillary Rodham Clinton and William J. Clinton had a beneficial interest during the period. (i) Copies of all tax returns, and schedules and other documents in connection therewith, filed or prepared by ValuePartners I during the period, together with all tax informational records and notices provided to partners in ValuePartners I during the period. Definitions. For purposes of this request, the following terms shall have the meanings set forth below: (a) ``You'' means you, Smith Capital Management, its agents, officers, employees, predecessors, successors, and affiliates. (b) ``Period'' means the period beginning on formation of ValuePartners I and ending on the date hereof. (c) ``Documents'' means all papers, notes, books, records, files, invoices, correspondence, computer data, memoranda, diaries, telephone records, and physical information of any kind. (d) ``Beneficial interest'' means direct or indirect ownership or financial interest, and includes specifically any interest in custodial accounts, investment accounts, individual retirement accounts, brokerage accounts, partnership interests, trusts, and any other form of savings, investment, or retirement account, as well as any direct or indirect interest in securities. Please respond no later than March 25, 1994. Thank you for your cooperation. Sincerely, Robert Livingston, Member of Congress. Christopher Cox, Member of Congress. George Gekas, Member of Congress. ____ Congress of the United States, House of Representatives, Washington, DC, March 9, 1994. Stephen D. Potts, Director, U.S. Office of Government Ethics, Washington, DC. Dear Mr. Potts: On January 26, 1994 Congressmen Livingston, Gekas, and Cox wrote to you seeking information as to the existence or status of any investigation into suggestions in the press that a federal employee, Hillary Rodham Clinton, had violated federal ethics laws and regulations. Your letter of February 10, 1994 responded that your office had not conducted and was not conducting an investigation because, thus far, ``OGE is not aware of any information * * * that would call for such an investigation.'' We have, therefore, provided below specific facts and circumstances that according to the standards set forth in your response merit further Congressional inquiry as well as investigation by the Office of Government Ethics. Your letter of February 10, 1994 states that if a person is an officer or employee of the executive branch of the United States government, that person's ethical conduct and responsibilities are governed by the criminal ethics laws of 18 U.S.C. secs. 201-209. You also say that the ``Standards of Ethical Conduct'' issued pursuant to the Ethics in Government Act, Executive Order 12674, as modified, and 5 U.S.C. secs. 7351 and 7353, set forth applicable regulations governing conflicting financial interests and misuse of position. You note the Standards of Ethical Conduct also include general principles of Executive Order 12674 which include, among others, the requirement that employees avoid any actions creating the appearance that they are violating ethics laws and regulations. In 1986 Hillary Rodham Clinton first acquired an interest in a non-public limited partnership called ValuePartners I. Some time during 1992 her investment in this partnership increased. William Rowland Smith is President of Smith Capital Management, Inc. (``Smith Capital'') and is the general partner of ValuePartners I. A registered investment advisor, Smith Capital filed an amendment to its registration statement with the United States Securities and Exchange Commission, Form ADV, on March 16, 1993. The amended Form ADV stated that the management of the assets of ValuePartners I was entrusted to Smith Capital for a fee of three percent a year. The Form ADV also discloses that Smith Capital provides at least quarterly reports to investors concerning the makeup, appraisal and performance of the investment portfolio of ValuePartners I. Tax reports are also provided in January- February for planning and tax reporting purposes. Additional reports are provided on request. The personal investments of President and Ms. Rodham Clinton were not placed into a blind trust until July 4, 1993. Consequently, prior to that date Ms. Rodham Clinton received regular reports from Smith Capital, including specifically a minimum of six reports in 1992 and the first half of 1993, detailing the short sale positions of ValuePartners I.\1\ Ms. Rodham Clinton was, therefore, actually and constructively in receipt of information showing she had a direct and personal financial interest in short sales of pharmaceutical and health care stocks. Indeed, a list of these short sales prepared by Smith Capital was attached to the Executive Branch Public Financial Disclosure Reports, Forms 278, filed by candidate William J. Clinton on November 7, 1991, and May 19, 1992, and by President Clinton on May 14, 1993.\2\ --------------------------------------------------------------------------- \2\Footnotes At End of Article --------------------------------------------------------------------------- The President's Task Force on National Health Care Reform (``Task Force'') was created in early 1993 for the specific purpose of developing a legislative proposal on health care. Ms. Rodham Clinton was appointed by the President as the Chairperson of the Task Force. This was a ``particular matter'' concerning which Ms. Rodham Clinton had responsibility for operation, management and decision making. She was judicially determined to be a federal employee for that purpose. Association of American Physicians and Surgeons v. Clinton 997 F.2d 898 (D.C. Cir. 1994). She was patently participating ``personally and substantially'' in the decision making of the Task Force. Ms. Rodham Clinton, in her federal employee capacity as Chairperson of the Task Force, gave numerous speeches attacking a discrete and identifiable class: pharmaceutical firms. Her attacks targeted these firms for regulation and price controls. These speeches had the effect of driving down prices in stocks in these specific companies. We submit herewith a detailed study produced at the University of Michigan concluding that the public pronouncements of the Clintons criticizing pharmaceutical firms depressed stock prices of those firms by as much as twenty-seven percent. S. Craig Pirrong, Political Rhetoric and Stock Price Volatility: A Case Study. This concentrated effort by the President and Ms. Rodham Clinton clearly had the ``direct and predictable effect'' of driving down the stock prices of pharmaceutical firms. United States v. Gorman, 807 F.2d 1299 (6th Cir. 1986). At the time that Ms. Rodham Clinton's actions caused the drop in the prices of these stocks, her personal investment in ValuePartners I, of which she had repeated notice, was intentionally structured to profit from price declines in pharmaceutical company stocks. The list of assets filed with each of the three Clinton Forms 278 shows short sales in twelve different pharmaceutical and health care companies, including Merck & Co. Inc., Bristol-Myers Squibb, Inc. and Bioplasty, Inc. The profit or loss from the individual short sales that Ms. Rodham Clinton's partnership made cannot be calculated from the inadequate and inconsistently reported information provided with the Forms 278 filed by the President after October 31, 1991. The net effect of the short selling by Ms. Rodham Clinton's partnership can, however, be determined from the filings. At the start of the Presidential campaign in October, 1991 the short sale portfolio of ValuePartners I included only one health care stock. A year later the short sale portfolio of Ms. Rodham Clinton's partnership included twelve pharmaceutical and health care companies. These short sales netted an overall profit of approximately $275,000. On these facts, and given the law and regulations you have cited as applicable in this case, the Office of Government Ethics has a responsibility to investigate this matter. Ms. Rodham Clinton had responsibility for a ``particular matter.'' She participated ``personally and substantially.'' Her official actions had a ``direct and predictable effect.'' She personally profited as a result. She had actual and constructive knowledge of her financial interest. At a minimum, this conduct violates the very regulations to which your previous letter refers, inasmuch as it constitutes the appearance of impropriety and conflict of interest. We believe, however, that Ms. Rodham Clinton's actions not only create the appearance of impropriety but may in fact violate the prohibitions of 18 U.S.C. sec. 208. If the Office of Government Ethics chooses not to immediately begin an investigation of this matter, and to take whatever other actions are necessary to enforce the federal ethics laws and regulations, we request that you outline the specific reason you believe that Section 208 is facially inapplicable. Please respond to this letter by the close of business on Wednesday, March 16, 1994. Thank you for your consideration. Sincerely, Robert L. Livingston, Member of Congress. George W. Gekas, Member of Congress. Christopher Cox. Member of Congress. footnotes \1\In addition, according to Mr. Smith, during 1992 Ms. Rodham Clinton and he spoke by telephone, During 1993 Vincent Foster, Deputy White House Counsel, and Mr. Smith spoke by telephone, apparently concerning Ms. Rodham Clinton's investment since Mr. Foster was not a participant in ValuePartners I at the time. Other partners in ValuePartners I were personal friends and acquaintances of Ms. Rodham Clinton--including James B. McDougal. The non-public, closely held nature of ValuePartners I, a partnership including individuals who knew each other, provides additional evidence that in addition to actual and constructive knowledge of ValuePartners I investments, Ms. Rodham Clinton may have been in a position to influence these investments. \2\We note that the filing by President Clinton is apparently not in compliance with governing federal regulations. The instructions to Schedule A of Form 278 require the listing of assets owned within thirty-one days of the filing of Form 278. On May 14, 1993 President Clinton filed Form 278 which included a ``Smith Capital Management Portfolio Appraisal, ValuePartners I,'' dated ``12-31-92.'' It would appear that, in order to comply with the thirty-one day requirement of form 278, the assets of ValuePartners I should not have been valued as of December, 1992. We would appreciate specific OGE advice concerning this requirement, and compliance or non- compliance therewith by the report in question. ____ Congress of the United States, House of Representatives, Washington, DC, January 26, 1994. Hon. Stephen D. Potts, Director, Office of Government Ethics, Washington, DC. Dear Mr. Potts: We are writing to you concerning reports covering the investment activities of either or both President William Clinton and First Lady Hillary Rodham Clinton published in the Washington Times and in Money magazine. The Washington Times reports, entitled ``Side Benefits of Rx Rhetoric'' (November 18, 1993) and ``Standards Shift for Hillary?'' (November 22, 1993), by nationally syndicated columnist Tony Snow, concerned the Clintons' investment in a partnership that sold pharmaceutical, health care, and insurance company stocks short. The articles raise the possibility that this short selling, combined with statements made by the President and First Lady, may have been in conflict with ethical regulations governing Administration officials. Copies of these articles are attached. According to press accounts, either or both the President or Ms. Clinton have invested approximately one hundred thousand dollars in a partnership named ``Valuepartners I.'' This partnership is managed by William Smith in Little Rock, Arkansas, a personal acquaintance of the Clintons. Press reports indicate that Valuepartners I dramatically increased its short selling of stocks in pharmaceutical, health care, and insurance company stocks at a time when Ms. Clinton and the President were making public statements critical of those industries, she in her capacity as head of the Administration's Health Care Task Force and he as President. An article in Money magazine entitled ``How Blind is Your Trust?'' (January, 1993) states that following the recommendations of Ms. Clinton's Health Care Task Force, prices of health care stocks dropped by as much as twenty and thirty percent. A copy of this article is also attached. Press reports allege that Ms. Clinton was receiving regular reports from her adviser, Mr. Smith, at this time. Only after the increased short selling campaign of Valuepartners I had begun, and only in July, 1993, months after Money magazine called for the Clintons to place their investments in a blind trust, was such a trust created. Both the President and Ms. Clinton would certainly be aware of the impact on the market of their statements about the Administration's health care proposals. The ability of the President and Ms. Clinton to affect prices in the securities markets is unique. The questions already raised publicly concerning their investments, particularly the short sales, must be addressed. To assist the Congress in making a determination of whether an investigation is warranted, we request that the Office of Government Ethics provide an analysis of the threshold questions that these transactions raise under the Ethics in Government Act. While we would appreciate any additional factual or legal observations the Office of Government Ethics and its staff can share with us concerning these matters, at a minimum, your analysis should include answers to the following questions: 1. In so far as the maintenance of public confidence in government clearly demands that an employee take no action which would constitute the use of his official position to advance his personal or private interests, would the announcement of proposed Administration policy, at a time when the officials responsible for the announcements owned investments whose prices would reasonably be expected to be impacted by these statements, constitute a violation of the Ethics in Government Act by those officials? 2. Is the Office of Government Ethics conducting an investigation into possible violations of the Ethics in Government Act by the President, Ms. Clinton, or Mr. Smith in connection with their short selling or other investment activities? We would appreciate at least a preliminary response to these questions by the close of business on February 9, 1994. If you need any additional information concerning this inquiry, please feel free to contact our offices. Thank you for your assistance in this matter. Sincerely, Robert L. Livingston, Member of Congress. George W. Gekas, Member of Congress. Christopher Cox, Member of Congress. ____________________