EPA chief's ethics woes have echoes in his past

He wanted to buy her showplace home as a second residence for when he was in the state capital.

“For those ego-minded politicians, it would be pretty cool to have this house close to the Capitol,” said the lobbyist, Marsha Lindsey. “It was stunning.”

Soon Pruitt was staying there, and so was at least one other lawmaker, according to interviews. Pruitt even bought Lindsey’s antique rugs, artwork and dining room set as furnishings, she said.

A review of real estate and other public records shows that Pruitt was not the sole owner: The property was held by a shell company registered to a business partner and law school friend, Kenneth Wagner. Wagner now holds a top political job at the Environmental Protection Agency, where Pruitt, 49, is the administrator.

The mortgage on the Oklahoma City home, the records show, was issued by a local bank that was led by another business associate of Pruitt’s, Albert Kelly. Recently barred from working in the finance industry because of banking violations, Kelly is now one of Pruitt’s top aides at the EPA and runs the agency’s Superfund program.

At the EPA, Pruitt is under investigation for allegations of unchecked spending, ethics lapses and other issues, including his interactions with lobbyists. An examination of Pruitt’s political career in Oklahoma reveals that many of the pitfalls he has encountered in Washington have echoes in his past.

According to real estate records, the 2003 purchase of the house for $375,000 came at a steep discount of about $100,000 from what Lindsey had paid a year earlier — a shortfall picked up by her employer, the telecom giant SBC Oklahoma.

SBC, previously known as Southwestern Bell and later as AT&T, had been lobbying lawmakers in the early 2000s on a range of matters, including a deregulation bill that would allow it to raise rates and a separate regulatory effort to reopen a case involving allegations that it had bribed local officials a decade earlier. Pruitt sided with the company on both matters, state records show.

In 2005, the shell company — Capitol House LLC — sold the property for $95,000 more than it had paid. While shell companies are legal, they often obscure the people who have an interest in them, and none of Pruitt’s financial disclosure filings in Oklahoma mentioned the company or the proceeds — a potential violation of the state’s ethics rules.

The Oklahoma City deal, which has not been previously reported, was one of several instances in which Pruitt appeared to have benefited from his relationships with Kelly and Wagner while in state politics.

During his eight years as a Republican state senator, Pruitt also upgraded his family residence in suburban Tulsa from a small ranch-style home to a lakefront property in a gated community. In addition, he bought a sizable stake in a minor league baseball team and took a second job at Wagner’s corporate law firm. Kelly’s bank, SpiritBank, would be there for much of it — providing financing for Pruitt’s Tulsa home and his stake in the baseball team, as well as the mortgage for the Oklahoma City house.

Pruitt’s interactions with SBC also show that his blurring of lines with lobbyists has roots in his Oklahoma years. One of the issues at the EPA that has gotten Pruitt in trouble with government watchdogs involved his renting a room in Washington for $50 a night from the wife of an energy lobbyist who has had business in front of the agency.

Lobbyists and others in Oklahoma state politics who encountered Pruitt recalled him as a tough competitor who always had his eye on a higher office. Some called him a “Boy Scout” who was stingy with his money, while others said privately that he had exuded a sense of entitlement — that rules did not apply to him.

Former Oklahoma Gov. David Walters, a Democrat, described Pruitt as someone who looked out for himself over the needs of constituents, especially during his years as attorney general.

“I was disappointed to find him operating in a hyperpartisan manner and seemingly representing corporate interests over Oklahoma citizens,” Walters said.

In response to questions submitted by The New York Times about Pruitt’s finances in Oklahoma, an EPA spokeswoman said Pruitt’s business dealings with Kelly and Wagner “were ethical” and his stake in the shell company “was a simple real estate investment.”

“Mr. Wagner and Mr. Kelly left high-profile positions in law and banking in Oklahoma, to serve in the administration,” the spokeswoman said in an email. “They are dedicated EPA employees who have earned the respect and admiration of EPA career employees across the country. They serve the country professionally, and transparently — and are committed to ensuring the programs they work on are successful.”

— Fraternizing in Oklahoma City

The house on Northeast 17th Street in the historic Lincoln Terrace neighborhood here was built in 1928 and has a grand staircase and an arched doorway. Lindsey said one of the home’s attractions was that it looked out on the white dome of the State Capitol.

Pruitt stayed in the house for parts of 2004 and 2005, neighbors said. The residence put him within walking distance of his job — legislators worked only part of the year, mainly from February through May — and also near SBC Bricktown Ballpark, which was home to his baseball team, the RedHawks, now known as the Dodgers.

Jim Dunlap, then a Republican leader in the state Senate, said he rented a room from Pruitt above the garage. He was under the impression that Pruitt had bought the home as an investment with a group of lawyers, he said.

“This was a place where you slept and had dinner,” Dunlap said. “It was all above board.”

Oklahoma campaign disclosures filed by Pruitt at the time made no mention of the home purchase or the rental agreement with Dunlap. Real estate records show that the transfer of ownership from Lindsey, the lobbyist, was rather complicated and involved multiple steps — none of them with any public reference to Pruitt, though the EPA spokeswoman confirmed that he was one of five co-owners of the shell company.

When asked whether such a disclosure would be necessary, the executive director of the Oklahoma Ethics Commission, Ashley Kemp, referred The Times to a 2005 ethics manual. The rules required disclosing “every business or entity” in which an official held securities valued at $5,000 or more. Securities were defined to include “documents that represent a share in a company.”

The EPA spokeswoman did not respond to questions about Pruitt’s disclosure filings in Oklahoma.

In November 2003, Lindsey signed the deed of the home over to a relocation company SBC had hired to handle her move and severance. She was reimbursed for close to $475,000, the amount she had paid for the house in 2002, as her contract required, she said.

The next day, the relocation company signed the property over to Jon Jiles, a health care executive who has a range of business interests and made contributions to Pruitt’s political campaigns. Records show no mortgage was involved, and Jiles paid $375,000 in cash.

That December, Wagner officially registered the Capitol House shell company with Oklahoma officials, and Jiles transferred the deed to the newly formed company. Jiles was listed as a manager of Capitol House, and Wagner as the registered agent.

The following month, SpiritBank, where Kelly was chief executive, approved a mortgage in the amount of $420,000 in the name of Capital House LLC, another spelling of the entity.

Lindsey, the former lobbyist, said she had been focused on her impending move to Dallas, and had deferred the sale and other arrangements to the company’s relocation agent. She said she had known nothing about the involvement of the shell company and did not recall the final sale price. “The bottom line is — it is unusual to take a $100,000 loss on the house” after being on the market for just a few weeks, she said.

Asked about the drop in price, AT&T said in a statement that two independent firms appraised the house and that its average value came to $390,000. The valuation and sale were handled by the relocation business, the company added.

Jiles, in an email exchange, said he became involved because Wagner presented the house as “a good deal” and a convenient place to stay. He said he had no other business interactions with Pruitt.

“A cash transaction was most likely used because sellers will often sell for less if it’s a cash deal rather than a finance deal,” Jiles said. “And I was likely the one most able to do a cash deal at the time.”

In a statement, SpiritBank’s chief executive and president, Rick Harper, said the bank was legally prohibited from commenting on specific loans, but added, “SpiritBank is confident these loans were made in accordance with applicable laws and regulations.”

The deal came at a time when SBC was a major employer in the state and a lobbying force in Oklahoma City.

As president of SBC Oklahoma and a registered lobbyist, Lindsey said she entertained lawmakers at her home. Moreover, SBC was known to court lawmakers with gifts, including tickets for Pruitt and others to watch Oklahoma State University play in the men’s basketball Final Four in 2004, The Oklahoman reported at the time.

“It gives us a chance to try to build a relationship with a lawmaker or an official,” a spokesman, Andy Morgan, told the newspaper. “Events like that offer a much more relaxed atmosphere.” He added: “We’re one of the state’s largest employers. It’s important that lawmakers are informed about issues affecting our company.”

The prospect of another investigation into a long-standing bribery case had especially rattled SBC. In the early 1990s, an SBC lobbyist had been found guilty in federal court of paying a bribe to a public utilities commissioner to sway a vote that allowed the company to keep federal tax savings rather than disburse them to its ratepayers. But the vote itself was never overturned, and in 2003, another commissioner proposed reopening the investigation, claiming SBC still owed billions of dollars in refunds. The commissioner dropped his plans for an investigation after state legislators, and the attorney general at the time, Drew Edmondson, pushed back against the effort.

Later, when Pruitt became attorney general, he helped quash another attempt to revisit the SBC bribery case. In a March 2011 letter, Pruitt’s office warned that any commissioner who reopened the investigation could face prosecution for the misuse of public funds.

— A Run of Good Fortune

Around the same time Pruitt invested in the house in Oklahoma City, he had finished a big business deal that involved Kelly, Wagner and a campaign donor who ran a large staffing company.

A baseball player in college, Pruitt bought an approximately 25 percent stake in the Oklahoma City RedHawks and became the team’s managing partner, making him a highly visible spokesman for the local team. Wagner also purchased a small stake, and Kelly’s bank provided financing for the deal, as first reported by The Intercept, which also disclosed the bank’s loans for one of Pruitt’s suburban Tulsa homes.

Pruitt’s main partner was Robert Funk, the business magnate who ran Express Services, the staffing firm. The sale price was not disclosed, but news reports suggested they paid more than $11.5 million, with Funk carrying the biggest load.

Two months after the deal closed in November 2003, Funk attended a news conference where Pruitt announced legislation that would make it harder for Oklahoma workers to claim certain kinds of injury compensation, something that would benefit companies like Funk’s.

The relationship continued, with Funk serving as campaign chairman during Pruitt’s unsuccessful bid for lieutenant governor in 2006. Pruitt announced his candidacy outside the ballpark and cited his efforts on workers’ compensation among his achievements.

After losing the election, Pruitt took a break from public office, but continued his business relationship with Funk, proposing a $200 million town center on a parking lot next to the ballpark. The City Council balked at the project, but Pruitt’s ambitions and prominence grew.

Back at home in Tulsa, Pruitt worked with Wagner’s firm, which had offices in SpiritBank’s building. As a corporate lawyer, Wagner frequently represented the bank, but also represented a used-car dealership run by Pruitt’s family.

In 2004, Pruitt upgraded from a modest one-story home where his family had lived for more than a decade to a $605,000 lakeside house a mile away. SpiritBank financed the home. The EPA spokeswoman said Pruitt was able to afford the house “due to his sale of personal assets.”

In September 2010, as Pruitt was on his way to successfully winning his race for attorney general, he and Funk announced that they had sold the RedHawks. They did not disclose the price, but Forbes estimated its value a few years later at $21 million. SpiritBank, where Kelly was still chief executive, “played a key role in facilitating” the deal by providing acquisition financing, a news release said.

As a candidate for attorney general, Pruitt was not required to disclose the extent of his assets, but there were hints that his finances had improved since his early days as a state senator. Early into his term, he and his wife paid $1.18 million for a 5,518 square foot Cotswold-style stone residence, featured in a book on Tulsa homes. It has five fireplaces, a library and a guest apartment.

— The Attorney General Years

During his six years as attorney general, Pruitt blazed a path of spending that holds new meaning now that his EPA expenditures are the subject of investigations and growing political outrage.

Pruitt moved the attorney general’s outpost in Tulsa to a prime suite in the Bank of America tower, an almost $12,000-a-month space that quadrupled the annual rent. He required his staff to regularly drive him between Tulsa and Oklahoma City, according to several people familiar with his time as attorney general.

And he channeled state contracts to Wagner’s law firm, which was already doing business with the state.

From 2011-17, state records show, the attorney general’s office awarded more than $600,000 in contracts to Wagner’s Tulsa-based law firm, Latham, Wagner, Steele & Lehman — greatly increasing work with the firm, which had gotten a total of about $100,000 over the four years before that. These contracts are not competitively bid. The additional expenditures reflected an approach, contentious even among some fellow Republicans, to hire private lawyers for state business, often for cases challenging federal regulations.

“He said that these people had special expertise that his agency didn’t have,” said former state Rep. Paul Wesselhoft, a Republican. “He has an army of lawyers with expertise. He didn’t have to spend that extra tax money to hire another law firm. It didn’t seem frugal.”

Pruitt used the Bank of America building as a base for his political ambitions. Oklahoma Strong Leadership, a political action committee he formed in 2015 to help finance fellow Republicans’ campaigns, operated out of the building. The group shared a suite with another PAC tied to Pruitt, Liberty 2.0, as well as his campaign office.

Oklahoma Strong Leadership, funded by private donors and corporations, also appeared to support Pruitt’s travel and entertainment. An analysis of expenditure disclosures by the Campaign Legal Center, a nonprofit that pushes for stricter rules governing money in politics, shows that just 9 percent of the PAC’s spending was devoted to other candidates. The group found that the PAC had disbursed more than $7,000 for trips to Hawaii in summer 2015 and 2016, $2,180 of which was spent at a Ritz-Carlton. The PAC also put $4,000 toward dining, including a $661 meal at the Cafe Pacific, a high-end seafood restaurant in Dallas.

The person who oversaw that spending, as the PAC’s treasurer and chairman, was Wagner.

— To Washington, With Friends

Last summer, about six months into his job as EPA administrator, Pruitt traveled by chartered jet to a Superfund cleanup site in Colorado, where the Gold King Mine had released toxic wastewater.

At the event were two of his most loyal Oklahoma business associates — Kelly and Wagner, newly installed as EPA officials themselves, though neither of them had a background in environmental policy or regulation.

Last year, Kelly, known as Kell, was barred for life from the banking industry. He has not disclosed why, though an order from the Federal Deposit Insurance Corp. said there was “reason to believe” he was illegally involved in “an agreement pertaining to a loan.” He has pushed for more intensive cleanups of Superfund locations to pave the way for investment on the reclaimed land by private developers.

Wagner landed a job as one of Pruitt’s closest personal aides, helping the agency coordinate its regional offices and representing it at high-profile events.

At an energy conference in Kentucky in November, Wagner reminisced about his long relationship with the EPA chief.

“I’ve known Administrator Pruitt for 20-plus years, and had the good fortune of being his business partner in a Triple-A baseball team and a former law partner as well,” he said. “The idea that the major influence at the EPA is coming from the middle of the country is something new.”

This article originally appeared in The New York Times.

EPA chief's ethics woes have echoes in his past

The lobbyist said that after the 2003 gathering, Pruitt — who had a modest legal practice and a state salary of $38,400 — reached out to her.

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