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Brown Adviser Investigated For Stock Nondisclosure

DAILY JOURNAL OF LOS ANGELES

The Fair Political Practices Commission opened an investigation into Nancy E. McFadden, a former senior vice president at Pacific Gas & Electric Co., after receiving a complaint that she advised Gov. Jerry Brown on energy-related legislation and appointments to regulatory boards in 2011 and 2012 while holding $1 million in energy-related stock.

The commission said it would limit its inquiry to McFadden’s failure to disclosure the stock holdings on economic interest statements in lieu of a larger conflict-of-interest investigation, citing insufficient evidence.

“For her not to have recused herself on utility matters is an outrageous abuse of public trust, and the FPPC must be using a standard to convict when they say ‘insufficient evidence’” said Jamie Court, president of Consumer Watchdog. The nonprofit law firm filed the 57-page complaint this month, attaching emails, economic filings, and timelines linking energy stock price fluctuations to gubernatorial decisions and state legislation McFadden worked on or had knowledge of before they became public in 2011 and 2012.

“When you have emails between Public Utilities Commissioners talking about who’s going to be appointed next to appease energy investors, and they write ‘Nancy said to send resumes,’ and those officials are now under criminal investigation or serving as government witnesses themselves, you would think that’s a sufficient basis to open an investigation,” Court added.

McFadden is executive secretary to Brown. She served during his first term beginning in 1975 and was senior advisor to former Gov. Gray Davis. McFadden has been described as Brown’s top aide and chief liaison to the Legislature, as well as a possible successor to State Attorney General Kamala D. Harris.

A response to the FPPC complaint made public by the governor’s office asserted that profits from stock sales are not required disclosures under the state’s Political Reform Act.

“It’s not surprising that the FPPC found these conflict of interest allegations totally baseless and will not pursue an investigation,” said Evan Westrup, press secretary to the governor. “We have already acknowledged inadvertent filing errors, and amended [economic interest statements] have already been re-filed with the FPPC to clear this up.”

According to Gov Code Section 82030(b)(5), reportable income excludes stock holdings “except for proceeds from the sale of these securities.”

But subdivision (b)(12) adds that stock sale profits do not have to be reported as long as “the filer sells…and does not know or have reason to know the identity of the purchaser.”

Consumer Watchdog said the impropriety stems not from who paid her for the stocks, but whether her sales were timed to profit from pro-utility policies she helped shape or knew about from working in the Capitol.

“Ms. McFadden had a standing order known to PG&E and her financial advisor to sell those options as soon as they vested, regardless of price; those orders were automatically carried out the same day,” the response to the complaint from the governor’s office states.

Additional disclosures filed with the response reveal McFadden also had up to $100,000 in stock options from Linn Energy, most of which has since been sold.

“Neither Ms. McFadden, nor her financial advisor, had knowledge these options existed,” and sold them upon discovery “without regard to share price,” the governor’s office continued.

The nonprofit said it would expand its investigation through 2015 and file additional complaints in light of fracking-related legislation that may have affected Linn Energy share prices.

“I’m a certified fraud examiner, and in terms of gathering sufficient evidence I wouldn’t allow the FPPC to discuss the case with the press secretary or have him answer on her behalf,” said Michael J. Aguirre, a former city attorney of San Diego who unearthed the emails detailing meetings between investors and government officials. “This is Ms. McFadden’s personal obligation.”

america_hernandez@dailyjournal.com