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U.S. Attorney's Office Probes NGSA Scandal

U.S. Attorney's Office Probes NGSA Scandal

The U.S. Attorney's office in Washington D.C. has begun to explore the possibility of criminal action in the case involving Nicholas J. Bush, former president of the Natural Gas Supply Association (NGSA), who was relieved of his duties two weeks ago in the wake of allegations that he defrauded the trade group of more than $2.4 million over a 12-year period. NGSA made the allegations in a lawsuit it filed two weeks ago.

Spokesman Channing Phillips said Justice Department policy precluded him from confirming that an investigation was in progress, but NGI has learned that prosecutors already have been in contact with certain parties close to the case. Criminal charges, if any are filed, would likely stem from allegations Bush created phony bank accounts and mailing addresses, and misused tax information and individuals' social security numbers as part of the apparent fraud scheme.

In the civil lawsuit, which was filed in D.C. Superior Court, NGSA accused Bush of causing the association to enter into bogus consulting contracts as far back as 1987 and then establishing an elaborate scheme that enabled the former NGSA president to divert for his own use the money that was paid to the phony consultants over the years. A court hearing on the case was scheduled for this past Friday, but was postponed 60 days because the "parties are talking." Details of the talks weren't revealed.

In the meantime, the court has ordered several of Bush's assets in the district valued at up to $1.25 million to be attached and seized, including his home in the plush Palisades section of Washington, his checking account and a safety deposit box, and a checking account allegedly established for one of the fictional consultants - James W. Rogers. NGSA estimated in its lawsuit that the bulk of the missing funds ($2.27 million) went to pay Rogers for consulting fees and expenses.

The court also has enjoined Bush, according to legal documents, from "selling, transferring, assigning, disposing, encumbering or removing" any of the association's assets, with the exception of "necessaries." The NGSA has posted a bond in the amount of $2.5 million in the event it's found that Bush was "wrongfully enjoined" or his assets "improperly attached."

Some sources questioned whether the NGSA civil lawsuit ever would reach the trial stage. And while a settlement is always a possibility, they doubted the association would retrieve much of the missing funds in the end. It will be "lucky to get 25 cents on a dollar," or about $600,000, said one observer. But another was more pessimistic. That money is "like the antebellum South, it's 'Gone with the Wind.'" In its civil action, the association is seeking damages of $2.43 million, plus $5 million in punitive damages.

The 14% of the missing funds that NGSA has been able to trace so far primarily went for Bush's own personal use - acquiring his Palisades home, making mortgage payments, and paying off credit card and utility bills, according to the NGSA lawsuit. Some last week speculated that part of the money also could have gone for lobbyist activities on Capitol Hill. "I'm not discounting the fact that it could have been that," NGI was told.

Official Washington and industry representatives reacted to the news with shock and dismay last week, with many asking how Bush - if the allegations have merit - or anyone, for that matter, could carry out a fraud scheme undetected for so many years.

Although many sympathized with NGSA and saw it as the victim, an industry observer said the association's board of directors "whether they like it or not has to assume some of the responsibility for this...It doesn't reflect very well on them right now. It makes it look like they've been asleep at the wheel." Several directors were in Washington Friday to meet with NGSA staff. The fallout from the scandal could affect other associations as well, the observer noted. "Board members are going to say if it happened there [NGSA], it could happen here."

The disclosure of the alleged fraud scheme once again has fueled debate over NGSA's future as a stand-alone organization - specifically, whether it should be folded into the American Petroleum Institute (API) from where it was spun off originally. The members of NGSA, both large and small producers, were "pretty loud and clear" when they decided last fall that they wanted NGSA to continue representing them, said one source, and that hasn't changed. But another believes the turmoil "very strongly strengthens [API's] hand" now. "If they [API] don't take advantage of this, they're making a big mistake."

Some believe NGSA has more immediate, pressing concerns at hand. It has a "lack of leadership problem that only gets worse as time goes on" and a "morale problem," which could "potentially undermine" the trade group's effectiveness in representing the gas industry, remarked one industry observer.

The alleged fraud scheme was detected in late January when the real James W. Rogers, who lives in Colorado, contacted NGSA after he received a tax bill for 1997 for $275,000 in income that he was alleged to have been paid for providing consulting services to the association. He never received the funds or had any relationship with NGSA, he said in an affidavit filed with the court. Further, he noted Bush called him and "indicated that there was some sort of confusion in his accounting department that had resulted from out-sourcing the accounting function of NGSA. Mr. Bush apologized for the mistake and indicated that it would be taken care of promptly."

But then John Sharp, NGSA's vice president of federal and state affairs and general counsel, contacted Rogers and asked him to recount his story, according to the affidavit, and this led to the unraveling of the alleged fraud scheme. Sharp has been given responsibility for the day-to-day operations of the association in the absence of Bush.

Susan Parker

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