Wright’s Lawyer Doubts Speaker Knew About Oil Deal

The lawyer handling House Speaker Jim Wright’s blind trust said Thursday he “cannot imagine” that Wright had advance knowledge of a petroleum deal engineered by two friends that generated a windfall profit for the trust at a time it that faced several pressing debts.

Ft. Worth attorney Thomas M. Law said in a telephone interview that he had known little about the 1988 transaction involving a Texas oil and gas well until the House Ethics Committee disclosed Monday that it is the subject of a continuing inquiry into Wright’s finances.

He charged that the committee report unfairly raises speculation about the propriety of the deal. In addition, he challenged suggestions that the amount paid for Wright’s interest in the well was up to six times its true value, noting that the remaining investors were so bullish they sank $1.1 million into further drilling before the site was abandoned.

The ethics panel is trying to determine whether Wright had knowledge of the transaction at the time--and whether the key participants, both friends of Wright, had an interest in legislation that might benefit from their giving gifts to the powerful House leader.

The Times reported Thursday that one of the participants, M. D. (Douglas) Jaffe Jr., runs a San Antonio aerospace firm that is seeking to share in a $3-billion Air Force program for new jet trainer now being studied by Congress.

John C. White, a former Democratic Party chairman who represents Jaffe interests in Washington, said Thursday that a Jaffe firm had a direct interest in a Senate bill several years back but that Wright was “never involved” with the bill.

The Senate bill, later passed by the House without debate, let certain noisy planes land at airports if they were retrofitted by Jaffe with kits that muffle engine roar.

White said also that the Jaffe firm still is interested in marketing a jet training aircraft to the Air Force, despite the crash of a test model near Wright-Patterson Air Force Base in Ohio last January.

As the investigation of the oil deal widens, the Ethics Committee’s two top leaders--Democratic Chairman Julian C. Dixon of Los Angeles and senior Republican John T. Myers of Indiana--are flying with investigators to Texas next week to interview the Jaffes and other key figures, sources said.

It is believed to be the first time that committee members have gone into the field during the 10-month investigation of Wright’s financial dealings.

Law, firing one of the first salvos in defense of Wright on the oil deal, acknowledged that the $341,000 profit on a $99,000 investment was “quite a large sum.” The proceeds were reaped by Mallightco, a partnership owned equally by Wright and his friend, George A. Mallick Jr. Wright’s stock in Mallightco was held in the blind trust.

“Normally,” Law added, “you would wonder how in the world it could be that much. Well, I don’t know and I don’t care.”

Law explained that he was concerned only that the deal would yield enough for the trust to pay off about $150,000 in debts. Law said he had asked few questions of Mallick when Mallick called with news of the transaction in May, 1988. Moreover, Law added, he does not believe that Wright and Mallick conferred privately on the deal without his knowledge.

“Both knew the (Ethics Committee) investigation was under way. I think that both of them were not so stupid that they would have engaged in any kind of discussion about that, because it could have come home to haunt them.”

Law charged that the Ethics Committee report prepared by special counsel Richard J. Phelan is “absolutely filled with innuendoes, inaccuracies and misstatements of fact.”

Separately, Mallick asserted in a brief interview from Ft. Worth that Wright had no knowledge of the deal at the time.

“As soon as the committee gets all the testimony, they will find there is nothing wrong,” he predicted.

The $341,000 profit on what eventually turned out to be a dry hole increased the value of Wright’s stock in Mallightco--and this benefited Wright when Mallick bought out his stock a month later for $350,000.

On behalf of Mallightco, Mallick purchased a 4% interest in a drilling venture in Sabine Lake near Beaumont, Tex., from Jaffe Energy Corp. The firm is one of more than 65 run by Jaffe and his father, M.D. (Morris) Jaffe Sr. Both are friends of Wright and are considered “big hitter” fund-raisers for the Democratic Party, according to a prominent Texas Democrat, who requested anonymity.

On the same day (May 10) that Mallightco bought the interest, it sold most of it through a complex loan transaction to Union Rheinische Petroleum Inc., a subsidiary of a German firm. The sale was arranged by Jaffe and Jefferson D. Prestridge, a vice president of Union Rheinische who works out of the offices of the Jaffe companies.

“They (Jaffe Energy) proposed this deal to us, and we eventually decided to do it,” Friedmann Striegel said in a telephone interview from his Munich office. Striegel is chairman of the board of Union Rheinische, which lost $440,000 on the deal.

“It was a very bad deal. It was a dry hole,” Striegel said. “But you can never be certain what is in these holes.”

He said that, during negotiations on the deal, he was unaware of drilling reports that well pressure was dropping, that it was “a troubled well.”

“This I did not know. And I did not know about a congressman,” he said.

Congressional investigators said that, a week before the transaction was closed, the well had ceased producing any oil despite extensive efforts to stimulate production. A second attempt to revive the well by drilling another hole did not begin until after Mallightco was out of the project. It also failed.

Striegel said his firm has had a close relationship with Jaffe and his associates since 1981 and relies on Jaffe for investment advice.

“If they think something is a good deal, we try to get involved,” Striegel said. “We trust Jaffe.”

The Jaffes have said that they will not discuss details of the controversial transaction until they meet with congressional investigators, possibly as early as Monday.

But a friend and sometimes business associate of the Jaffes said he thought the allegations against the prominent San Antonio family looked somewhat “flimsy.”

Oliver Heard, a well-known lawyer here, said the Jaffes were extremely careful in their business dealings.

The Jaffes, who remained investors in the well after Mallightco was bought out by Union Rheinische, could have thought they were helping their German associates by brokering the sale of Mallightco’s interest before the second phase of the drilling took place, he said. Various oil operators involved in the drilling have said that the well still looked like a good prospect, despite the wording of the Ethics Committee report.

“These aren’t the kind of people who drown in shallow water,” Heard said.

The elder Jaffe is known in San Antonio as a strong supporter of Wright. John Dalton, a San Antonio banker and Democratic supporter, said that most invitations to functions involving the House Speaker come through Jaffe.

“I think the Jaffes are about as strong a support as he has here,” he said. “He (Morris) is kind of the point man here.”

This story was reported by Paul Houston in Washington and J. Michael Kennedy and William C. Rempel in San Antonio.

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