Unelected officials now face scrutiny on stockholdings

Some say the raised ethics standards will only serve to discourage people from taking public-service jobs.

When four power traders from Pasadena, Calif., came to the state capital several months ago to help keep the world's eighth-largest economy from falling into the abyss of blackouts, portfolios never came up. Perhaps they should have.

The traders were recently fired because they held stock in one of the power companies that the state was buying from. As the investigation widens, it points to a new truth in American politics: Ethics standards once applied only to elected officials are increasingly being applied to every public servant.

This scrutiny has risen, as Americans demand a higher level of disclosure than ever before. Government reforms root out corruption at deeper levels, even as the Web and 24-hour news stations offer unprecedented access to information.

To some experts, it's an example of overzealous officiating, as rabid political watchdogs chase off qualified would-be public officials by forcing them to become financial eunuchs. To others, though, such sacrifice is a crucial part of making sure every aspect of government is trustworthy.

"What is new is the focus on ... people who were not elected," says David King of the John F. Kennedy School of Government at Harvard University in Cambridge, Mass. "For a long time, they've flown under the radar."

The issue of stocks and conflict of interest has been particularly prominent during the past year. For one, President George W. Bush's top adviser, Karl Rove, has been criticized twice for meeting with representatives of industries in which he has major financial holdings. Also, Secretary of Defense Donald Rumsfeld has had to ask for two 90-day extensions to divest himself of his stocks.

At the state level, concerns in California surrounding the state's energy crunch have been the most prominent example. But there are others:

• Late last year, more than a dozen state officials and regulators in Minnesota came under fire for holding stocks in companies with which they did business. The commissioner of health had stock in an HMO, a medical-equipmentmaker, and two drugmakers.

• Wisconsin's appointed lieutenant governor, Margaret Farrow, was criticized earlier this year for refusing to put her portfolio into a blind trust - in which a trustee makes all investment decisions.

• Even in Georgia, where ethics laws are comparatively weak, critics have attacked the state agriculture commissioner, who holds stock in some firms he regulates.

• Here in California, the public utilities commissioner faces a consumer lawsuit related to his large holdings in a wireless phone company his agency regulated. But the big Golden State stock scandal is over energy - largely the result of the state's frantic efforts to save its foundering energy system six months ago. When California's experiment in deregulation failed, it quickly hired more than 50 consultants and traders to help the state buy power on its own. All were supposed to file a financial disclosure form within 30 days. They weren't finished until five months later.

Now, as these disclosures have trickled in, no one has escaped scrutiny, including Gov. Gray Davis' press secretary Steve Maviglio. Beyond the four power traders, a host of higher-level government officials - from $300-an-hour consultants to the head of the California Energy Commission - have been found to own significant stock in the energy companies they regulate. One has been fired, but another set of advisers, Governor Davis insists, are not subject to California's disclosure laws.

The federal Securities Exchange Commission is already investigating the situation, according to several reports. Critics welcome the probe, saying Davis's actions so far amount to little more than a token gesture. "We're in the midst of an unprecedented energy crisis, with government officials making decisions with tens of billions of public dollars, and the public has a right to know that these decisions are not being made for private interests," says Jim Knox of California Common Cause in Sacramento.

That public confidence is vital to the effectiveness of government, experts say. In California, like many states, it's a crime for officials to participate in government decisions in which they have a direct financial stake. "It's unrealistic to expect people to divest all their private holdings to be in government," says David Schultz, a political scientist at Hamline University in St. Paul, Minn. But for people involved in regulation, "the rules are more important than anywhere else, because these people are in a quasi-law-enforcement position."

If that leaves some people out of government - fine, others add. After all, they say, public service has always been something of a sacrifice.

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