Investors Defend Oil Deal That Benefited Wright
Texas oil investors, breaking their silence on a 1988 deal that provided Speaker Jim Wright with a quick profit of about $350,000, defended the transaction Monday as “entirely legitimate” and rejected suggestions in a House Ethics Committee report that it may have been a disguised gift to the Speaker.
In a statement issued by their Washington lawyer, the Texans also accused Richard J. Phelan, the committee’s special counsel, of displaying “prosecutorial zeal” in the Wright investigation and renewed their challenge to the committee’s authority to require their testimony later this week.
The Texans’ lawyer, Stanley M. Brand, said it is still “an open question” whether his five clients will comply with the subpoenas and appear before the panel to answer questions under oath Wednesday and Thursday.
‘A Straight-Up Deal’
Their statement was issued “to set the record straight . . . to show that the deal is a straight-up deal by responsible businessmen,” Brand said.
The controversial Sabine Lake oil-and-gas investment, rather than being worthless as Phelan’s report implied, may contain oil and gas valued at $100 million, the statement said.
Although two earlier drilling attempts failed to produce any results and the well was plugged and abandoned last summer, the statement said, the investors now expect to drill a third time at an additional cost of $2 million.
Ethics Committee Chairman Julian C. Dixon (D-Los Angeles) and Rep. John T. Myers (R-Ind.), the ranking Republican on the panel, were rebuffed last week when they went to San Antonio to take testimony from the five Texans, including veteran Democratic Party fund-raiser Morris D. Jaffe and his son, Douglas.
The Jaffes and three others involved in the Sabine Lake deal refused to appear and challenged the right of the House committee to investigate the transaction. The panel, however, rejected the challenge and demanded that the investors appear this week as part of the committee’s effort to complete its 10-month inquiry into Wright’s financial affairs.
Investment Company
A 4% interest in the oil well was acquired by Mallightco, an investment company Wright had formed with Ft. Worth real estate developer George A. Mallick Jr., for about $90,000 on Jan. 12, 1988, the Texans stated.
They said that Mallick had contacted Morris Jaffe late in 1987 to ask about possible oil ventures for $75,000 to $100,000.
“At no time did Mallick mention that he was acting for Jim Wright, Mallightco or anyone other than himself,” the Texans’ statement said.
Mallick’s son, Michael, then contacted Douglas Jaffe and bought a 4% interest in the Sabine Lake tract that was reflected in a Jan. 12, 1988, letter of agreement. Later, the statement said, the younger Jaffe decided to offer a West German firm, Union Rheinische Petroleum, a chance to buy a 2.5% interest from Mallightco for $440,000--which was paid in the form of a loan.
Wright’s interest in Mallightco was bought out by his partner last June, using funds from the $440,000 loan, yielding the Speaker a profit of about $350,00 on his investment in Mallightco.
In his report on Wright’s dealings, special counsel Phelan said that, “while the ‘loan’ from URP appears to be a gift to Michael Mallick or Mallightco, we cannot yet conclude that any House rules were violated.” Phelan noted that Wright’s holdings in Mallightco were in a blind trust at the time of the deal.
Challenging Phelan’s interpretation of the complex transactions, the Texans’ statement rejected his contention that the price paid by the West German firm was “dramatically greater” than the value of the oil property last May. An April 3, 1988, test of the well showed “phenomenal quantities of oil and gas” that the owners believe can be recovered in the future, the Texans said.
Jeff Prestridge, consulting geologist on the Sabine Lake investment who is one of the five people under subpoena, estimated eventual profits of $44 million from the well, or roughly $443,500 for each 1% interest, the statement said.
“Based upon the Prestridge analysis, which reflected a value of over $440,000 for each 1% working interest, this seemed to be an extremely favorable deal for URP,” the statement said.
But the drilling ran into problems and, after a second well was started last August without any productive results, the two wells were plugged and abandoned last Sept. 21.
Meantime, the Wall Street Journal disclosed Monday that Wright gave a warm endorsement to a Seattle, Wash., company after it put his wife, Betty, on the payroll at a salary of $36,000 a year.
Wright’s remarks about a family-oriented video program by the Pacific Institute were placed in the Congressional Record on Dec. 9, 1985. Betty Wright began working for the firm in September, 1984, at the same time she was an $18,000-a-year employee of Mallightco.
The Speaker said the series of 21 videocassettes put out by the Pacific Institute were “marvelously useful . . . to promote togetherness” at “a nominal price within the range of most American families.”
The Speaker is facing charges that his wife’s Mallightco salary, along with the free use of a car and an apartment in Ft. Worth, amounted to $145,000 worth of illegal gifts from Mallick to Wright in violation of House rules.
Wright has denied any wrongdoing and has asked to present his defense as soon as possible to the Ethics Committee, which will judge whether the allegations are proven or not.
