When the Clinton Administration privatized the United States Enrichment Corporation (USEC) last year, critics warned that the new company would seek to back out of a historic but unprofitable deal to reprocess uranium from Russian nuclear warheads. What they didn’t know was that the privatization scheme itself was severely flawed by insider dealing that ultimately resulted in millions of dollars in benefits being paid out to company officials and advisers. Now, those same officials are claiming they need a federal bailout of up to $200 million or there will be severe consequences for the US-Russia nonproliferation program.
USEC has dispatched a team of lobbyists from one of Washington’s top firms, Patton Boggs, to meet with members of Congress and the Administration to press its case. The Nation obtained a November 12 letter to White House Chief of Staff John Podesta from Thomas Hale Boggs Jr., top lobbyist for the firm, which says that a bailout “need[s] to be acted upon before Congress adjourns this year.” (Congress took no action before adjournment, but the issue is still very much alive.) Another USEC hired gun, Greg Simon–former adviser and presidential campaign counselor to Al Gore, a leading proponent of the privatization scheme–is helping Boggs coordinate the lobbying campaign.
How did the government get itself into this mess? USEC’s directors, led by board chairman William Rainer, approved the company’s sale in June 1998 by a 3-to-1 vote (a fifth board member abstained). The privatization took place through a public stock offering (IPO), an option drawn up by USEC’s incumbent management. That plan won out over competing bids from General Atomics and Lockheed Martin to buy the company outright, as well as a nonprivatization option. Rainer predicted that the IPO would net the government “appreciably higher proceeds” than the $1.9 billion Lockheed was offering; in fact it brought in precisely the same amount.
It’s no surprise that USEC’s managers preferred the IPO route. Lockheed and General Atomics both had their own management teams, so USEC’s senior officials would likely have been out of a job if the company were sold to an outside bidder. Instead, at least six members of the old guard currently hold top positions at the new USEC. William Timbers, CEO and president of the new and old company, earned $325,000 when USEC was in public hands. Last February, the board of the newly privatized USEC set his base pay at $600,000 per year, gave him a $617,625 bonus and awarded him stock shares currently worth about $900,000.
Federal law bars government employees from taking part in decisions that affect their personal financial situation. Rainer granted Timbers’s request for a waiver so he could participate in the privatization debate, stating that he and other board members would protect the integrity of the process. Board meeting minutes obtained under the Freedom of Information Act show that Rainer authorized Timbers and a USEC lawyer to hear the ostensibly confidential presentations of competing bidders and subsequently allowed Timbers and other senior managers to critique those bids before the board. USEC’s financial adviser, investment firm J.P. Morgan–which raked in more than $12.5 million in fees for its assistance–was also permitted to argue before the board in favor of management’s IPO scheme. So, too, was USEC’s outside counsel, Skadden, Arps, which made upward of $10 million in fees during the privatization debate.