Murky Rules for Lawmaker-Lobbyist Ties

State Rep. Craig Eiland, D-Galveston, is well aware that registered lobbyists are fellow investors in two politically connected banks he owns stock in. So when he fills out his annual financial statement, he discloses them as investments “in common” with lobbyists.

But two lawmakers with stakes and roles in the same financial institutions — Rep. Dan Flynn and Sen. Kirk Watson — came to different conclusions. They didn’t report the lobbyist connections to the Texas Ethics Commission, which generally requires lawmakers to identify such arrangements.

The varying interpretations, stemming from loopholes and legal ambiguity, highlight a major weakness in the state ethics law: legislators are generally deciding for themselves what to disclose and what to keep secret. And the public is often left in the dark about important relationships between their elected representatives and the people who are paid to influence the Legislature.

“There is no umpire here. There is no one who can make decisions,” said Trent Seibert, editor of Texas Watchdog, which reports on ethics and conflicts of interest among state elected officials. “These rules are patently silly.”

The two banks in question are Heritage Bank of Pearland and Frontier Bank of Elgin, both state-chartered institutions regulated by the Texas Department of Banking.

Heritage Bank was founded by state Rep. Dennis Bonnen, R-Angleton, who is president and CEO. Two other lawmakers, Eiland and Flynn, R-Canton, have investment or leadership ties to the bank. Flynn’s wife has 5,000 shares of Heritage Bank stock in her IRA and Flynn sits on the board, according to Bonnen. Rusty Kelley, a top-tier Austin lobbyist, also owns stock in the bank and is a member of the board of directors.

While Bonnen and Eiland both revealed a common investment link with a lobbyist on their ethics disclosures, Flynn did not. Flynn said in an email that his wife exclusively owned the stock. And since the law stipulates that members only have to report on assets over which they have “actual control,” he said he did need to disclose it. The law doesn’t say specifically whether serving on a bank board with a registered lobbyist has to be revealed, nor does it define precisely what “actual control” means when it comes to a spouse's assets.

On his personal financial statement, Flynn reported ownership of Heritage stock in 2011, and joint ownership with his wife in 2010, to the tune of more than 10,000 shares. He did not respond to a request to explain the discrepancy, but Bonnen said the stock is and always has been held by Flynn’s wife and has never been sold.

Frontier Bank, founded in Elgin in 2007, also has a lot of bold-faced political names in its history. Among its founders and investors are Ken Armbrister, chief legislative aide to Gov. Rick Perry, Joseph Beal, former general manager of the Lower Colorado River Authority, and Tom Scott, ex-mayor of Bastrop and former in-house lobbyist for the University of Texas System. Two legislators, Eiland and Watson, D-Austin, are shareholders, as is lobbyist Curtis Fuelberg, according to interviews and the bank’s website. 

Like he did with the Heritage deal, Eiland reported his stake in Frontier Bank as an investment in common with a lobbyist. Watson did not.

In an interview, Watson said he knew about Fuelberg’s participation as an investor but doesn’t believe he was required to disclose it because the law exempts “publicly held” corporations. Frontier, described as "private" on various company analysis websites, is a small bank with only two branches. It doesn’t fit the popular description of “publicly held,” generally interchangeable in financial lexicon with “publicly traded” and applied to companies like Exxon Mobil and Apple Inc.

In the case of Frontier, Watson pointed to a public stock offering made by the bank early on, a strategy designed to encourage Bastrop County residents to own a piece of Frontier and participate in a shared economic destiny. Though shares aren’t traded on Wall Street, Watson said people can continue to buy and sell stock in the bank as long as there are willing parties to the deal.

“It pretty clearly fits the definition of a publicly held corporation,” Watson said. “There would be little way for the member to know if a registered lobbyist had bought or sold stock, making it nearly impossible to comply with the filing requirements if there weren’t the exemption.”

The Ethics Commission had no guidance to offer, either in written opinions or in its explanation of the law to the Tribune.

“The [disclosure] form is just a graphic rendering of the statute,” said Ethics Commission lawyer Tim Sorrells, referring to the section dealing with business deals in common with lobbyists.

One seemingly crucial piece of information is not required on the disclosure form at all: the name of the lobbyist. As it turns out, both Frontier and Heritage disclose on their websites the names of at least one lobbyist involved in each — Fuelberg as an investor in the former and Kelley as a director of the latter. It could not be determined if any other lobbyists have stakes in the two banks.

Another legislative example: It is impossible to know which lobbyist is involved in an Austin real estate company state Rep. (and former Speaker) Tom Craddick reports having a common interest in. Craddick, who has disclosed numerous business ties to lobbyists over the years, named the company, Centro Caswell LLC, as having a lobbyist partner. But his office declined to name any lobbyists, and the address given for the business, in a suite at 823 Congress in Austin, does not appear to have any lobbyists working there.

Ethics watchdogs and lawmakers alike say the rules should be cleared up to give lawmakers clearer guidance and to establish sensible, agreed-upon thresholds for triggering disclosure.

“It’s entirely too ambiguous,” said Bonnen, the state lawmaker who serves as Heritage Bank CEO. “There needs to be clearer measures of where we’re pointing out the common interests.”

The modern ethics disclosure law was crafted in response to the 1971 Sharpstown Scandal, a stock fraud and influence peddling case that reached the highest levels of state government. Requiring lawmakers to reveal details about their relationships with lobbyists came onto the law books two decades later, in 1991, after a series of eye-popping reports about heavy lobby spending and gifts to legislators.

Seibert, of Texas Watchdog, said requiring lawmakers to disclose their business and personal ties to lobbyists helps voters and citizens to determine whether the people representing them have conflicts of interest between their official duties and their private affairs.

“If I’m in business with a lobbyist, when he comes to lobby me am I making a decision on what is best for my constituents or what’s best for my pocketbook?” Seibert asked. “It is of prime importance that these relationships are disclosed fully.”