Crossing Over

How government watchdogs became the energy industry's party animals

Smith's outside activities apparently didn't hinder his efforts to boost morale around the Federal Center. An RIK employee told investigators that Smith purchased cocaine from her at work, referring to it as "office supplies," and boosted her performance bonus by $250 for her efforts. (Smith denied both of these allegations while admitting to cocaine use outside of work.) Another employee claimed that Smith coerced her into performing oral sex on him in a moving car. Smith, who's now retired from MMS, admitted that he had "downplayed" certain matters in his own interviews with investigators because he didn't want to "self-incriminate."

Some of Smith's subordinates had outside consulting gigs, too. One, Stacy Leyshon, operated a sex-toy business on the side and reportedly "bragged that she made more money with this business than her salary at MMS." As the person in charge of marketing RIK oil, Leyshon also raked in more trips, meals and gifts from energy companies than any other MMS employee, a total of 45 gifts from "prohibited sources" valued at $2,887. As the reports note, none of the gifts were all that unusual — a golf tournament, free luggage — but their "prodigious frequency" was.

Leyshon and other employees had no trouble defending their chronic shmoozing at industry functions. It was all about networking, building relationships and gathering market intelligence; Leyshon defended it as "the RIK way of doing business." But some industry sources disagreed, telling investigators that little or no business was conducted at the events the MMS chicks attended. "It was about the skiing," said one.

Former federal auditor Bobby Maxwell went public with problems in oil royalty payments in 2005.
John Johnston
Former federal auditor Bobby Maxwell went public with problems in oil royalty payments in 2005.

Yet the intimate relations Leyshon and another female MMS staffer developed with energy-industry types apparently coincided with efforts to fix hitches in government contracts, usually in the private sector's favor. "Sexual relationships with prohibited sources cannot, by definition, be arms-length," the report primly states, before unleashing an astonishing figure: Of 121 contract amendments approved by Leyshon, only three favored the government. The others cost her agency $4.4 million.

The true costs of trying to run MMS like a business — a hard-charging, hard-partying, corrupt corner of the energy business — may never be known. Agency critics have estimated that the combined losses of public revenue from fewer audits, sweetheart leases and the agency's new compliance review procedures, which depend on self-reporting by energy companies, amount to billions of dollars.

The agency's failures have also created new opportunities for entrepreneurship. Fired auditor Maxwell, for example, decided to pursue his claims of underpaid royalties on the government's behalf, even without its help. He filed a False Claims Act case against Kerr-McGee in Denver's federal court and obtained a jury verdict in the government's favor of $7.5 million. The verdict was tossed out on a technicality, but last week, as Devaney's reports were being released, the Tenth Circuit Court of Appeals reinstated the award. With penalties and fees, the judgment could be worth as much as $40 million — and Maxwell and his attorneys could end up with a third of that, for taking care of business the government didn't want.

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