Texans in Wright Oil Deal Seek Share in AF Program
Texas businessmen involved in a petroleum deal that produced windfall profits for the blind trust of House Speaker Jim Wright (D-Tex.) also have been seeking to share in a $3-billion Air Force development program now being studied by Congress, The Times learned Wednesday.
The businessmen’s interest in the Air Force program--a massive package of contracts for developing the nation’s next jet pilot training aircraft--raises new questions about a matter still under investigation by the House Ethics Committee.
In its report Monday on Wright’s financial dealings, the ethics panel disclosed a transaction last year in which Wright and his associates purchased a 4% interest in an oil and gas well for $99,000 and immediately sold it at a $341,000 profit.
The committee’s special counsel, Richard J. Phelan, raised questions about whether the firms involved in the transaction could have had a direct interest in any matter pending before Congress. Phelan said also that investigators needed to determine whether Wright had knowledge of the deal.
Many details of the affair are murky, and the Ethics Committee has refused to comment further until its investigation is completed. But it seems clear that a company allied with the firms that arranged the deal benefiting Wright also had separate and substantial interests before Congress.
This is what has emerged from corporate records and interviews with sources in Congress and the aerospace industry:
Wright and his partners in a private investment group called Mallightco purchased on May 10, 1988, an interest in an oil and gas well near Beaumont, Tex., from Jaffe Energy Corp. That same day, Mallightco entered into a complex loan arrangement that, in effect, sold its interest in the well to Union Rheinische Petroleum Inc. Congressional investigators estimate that Union Rheinische paid up to six times as much as the well was worth.
The $341,000 profit increased the value of Wright’s stock in Mallightco--and this benefited Wright when his partner, George A. Mallick Jr., bought the stock back from him a month later for $350,000.
The Times has learned that close ties exist between Jaffe and Union Rheinische--suggesting the deal that paid Wright a handsome profit may not have been an arms-length business transaction.
According to state corporation records in Austin, Jefferson D. Prestridge, a vice president of Union Rheinische Petroleum, had been a vice president of Jaffe Energy two years earlier.
Prestridge, who describes himself as a consulting geologist, still maintains an office with Morris D. (Doug) Jaffe Jr., a principal partner in Jaffe Energy, in San Antonio. No one there would discuss his current business ties to Jaffe, but a woman in Jaffe’s office who took messages for Prestridge said the geologist also had an office there.
Jaffe Energy is one of more than 65 companies owned by a wealthy San Antonio family with long-established ties to Texas Democratic Party officials.
One of the Jaffe companies, Jaffe Aerospace Corp., has shown an active interest in the Air Force’s search for a new basic trainer aircraft to replace the aging T-37. The company sent a demonstration plane to Wright-Patterson Air Force Base in Dayton, Ohio, last January, an Air Force official said. But it crashed 10 minutes after takeoff, killing the company pilot and an Air Force captain, according to the National Transportation Safety Board.
A spokesman for Wright has said that the Speaker had no knowledge of the oil and gas deal because his Mallightco stock was in a blind trust. It could not be determined whether Wright had any knowledge of Jaffe’s interest in the Air Force program. His press secretary, Mark Johnson, did not return a reporter’s phone call.
The Jaffe companies--owned by M. D. (Morris) Jaffe Sr. and his son M. D. (Doug) Jaffe Jr.--include oil ventures, a large shopping center and other real estate developments. Jaffe Aerospace Corp. mainly refurbishes airplanes, but the aircraft it offered to the Air Force was an experimental plane designed by a person who markets home-built plane kits.
Last February, the Air Force delivered to House and Senate Armed Services committees a report saying that, in 1996, it wanted to begin buying “off-the-shelf” business jets for pilot training. The Pentagon said it hoped to spend more than $3 billion to buy 538 of the basic trainers for the Air Force.
An Air Force spokesman said that no requests for proposals have yet been submitted but that about 20 aircraft concerns from around the world had expressed an interest. The only three U.S. companies to have shown an interest so far are Grumman Corp., McDonnell Douglas Corp. and Jaffe Aerospace.
The Pentagon once in 1985 killed the jet trainer program after it developed cost and technical problems. It has since reopened the request for companies to bid on it.
Congress has approved $14.1 million to begin buying a more advanced trainer, one to teach pilots to fly refueling and transport aircraft. However, no money has been approved for the basic trainer. Congress is currently reviewing that request.
The 1988 deal centering on an oil and gas well in Sabine Lake off the Gulf of Mexico was initiated by Doug Jaffe and Mallick’s son, Michael, according to an Ethics Committee report. The report said hat the sons “met through their fathers and became friendly as well.”
The elder Jaffe has been a major contributor to the Democratic Party and was a close friend of the late President Lyndon B. Johnson and former House Speaker Sam Rayburn, acquaintances said.
Prestridge, the vice president of Union Rheinische Petroleum who maintains a Jaffe office, did not return repeated calls to his office and home. He told the Wall Street Journal earlier this week that the oil well deal was arranged between Jaffe and Union Rheinische executives in Germany.
“I signed no contracts regarding anything to do with that Sabine Lake deal,” he told the paper.
L.R. Brammer Jr., an investor who oversaw the drilling of the controversial well, said Wednesday that prospects for a gusher seemed good at first.
“It appeared that we had good sand that would produce oil and gas,” he said in a phone interview from his Shreveport, La., office.
The committee said, however, that serious problems began to develop with the well in late April, about two weeks before the sale. Brammer said the problems became so severe that the first hole had to be capped in June, 1988. A second was drilled in July and August, but tests then showed that they had discovered only a small pocket of oil and gas.
According to the committee report, a “petroleum expert” told members that the well was worth about $169,000 at most and perhaps as little as $70,000--nowhere near the $440,000 that Union Rheinische actually paid Mallightco.
Mallightco netted $341,000 on the deal after spending $9,120 for initial rights and committing $90,000 for drilling and completion expenses.
This story was reported by Paul Houston in Washington and J. Michael Kennedy and William C. Rempel in San Antonio.
