Three related reports delivered to Congress Wednesday revealed the underbelly of the Interior Department’s Minerals Management Service (MMS) that few knew about — one that involves drug usage, sex between employees involved in the agency’s royalty in-kind (RIK) program and financial/contract misconduct at high levels.

In a cover letter that accompanied the reports, the department’s Inspector General Earl E. Devaney asked Interior Secretary Dirk Kempthorne to take “appropriate administrative action to bring this disturbing chapter of MMS history to a close.”

The investigation, which took two years, explored allegations involving more than a dozen current and former employees of the MMS, the federal agency that collects billions of dollars of royalties each year from production on the federal Outer Continental Shelf. Most of the alleged misconduct and violations involved employees associated with the RIK program, which was set up by MMS to accept royalties in-kind (product) rather than in cash, and sell the oil and natural gas at competitive prices.

One of the reports focused exclusively on the alleged misconduct of Gregory W. Smith, who had been the RIK program director in Lakewood, CO. He was accused of using cocaine with a subordinate, engaging in sex with employees, accepting gifts from the oil and gas industry and accepting fees for marketing work that conflicted with his RIK position.

“I will tell you that we requested this investigation in 2006 after an employee raised allegations of ethical lapses,” said Randall Luthi, head of the MMS. “I look forward to having the opportunity to review the Inspector General’s findings so we can take the appropriate actions.”

In an interview with the Office of Inspector General (OIG), a RIK employee said that “Smith often asked her for cocaine, and she provided it to him three to four times per year between 2002 and 2005. [She] stated that either she or her boyfriend delivered the drugs directly to Smith at the MMS office…On several occasions, Smith went to her house to pick up cocaine…Smith directed her to purchase cocaine for him during normal MMS business hours, and Smith used the term ‘office supplies’ when discussing cocaine while at work.”

Another RIK female employee recounted that she was forced to have sex with Smith in a car, the report said. “She said Smith was ‘real persistent’ but not violent, and she did not feel as though she had been sexually assaulted by Smith. She stated that it was difficult for her to have sex with Smith because he supervised her and RIK, but she ‘felt like [she] could get fired,’ so she did what Smith wanted.'”

Smith, who retired from MMS in 2007, admitted to having only one sexual encounter with the RIK employee in either January of 2003 or 2004, according to the OIG report.

The investigation further disclosed that between April 2002 and June 2003, Geomatrix Consultants Inc., an environmental and engineering consulting firm, paid Smith more than $30,000 for his work in marketing Geomatrix to various oil and gas companies — in direct conflict with his duties as RIK program director. He also failed to report that he received nearly $1,000 in golf outings and other gratuities from employees of Shell, Chevron and Gary Williams Energy Co.

The Department of Justice (DOJ) in May declined to prosecute Smith on various charges.

A separate report found that Lucy Querques Denett, associate director of MMS’ Minerals Revenue Management, had acted together with her special assistant, Jimmy Mayberry, to create a lucrative contract for Mayberry when he retired in January 2003 and started a consulting firm, which he called Federal Business Solutions. In June 2003 MMS awarded a contract to Mayberry’s firm.

Milton Dial, who was assistant program director for RIK and good friends with Denett and Mayberry, oversaw the contract for MMS. Shortly after his retirement from MMS, Dial began working for Mayberry.

The matter involving Denett, Mayberry and Dial “paint[s] a disturbing picture of three senior executives who were good friends and who remained calculatedly ignorant of the rules governing post-employment restrictions,” Devaney said. The case is being referred to DOJ for appropriate action. The OIG noted that Mayberry already has pleaded guilty to a criminal charge.

In a third investigation, “we discovered [that] between 2002 and 2006 nearly one-third of the entire RIK staff socialized with and received an array of gifts and gratuities from oil and gas companies,” he noted.

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