Louisiana: The State We're In; 407

Through contributions to Friends of LPB. The FBI went undercover in Louisiana last summer. It was Operation Bri-lab, aimed at netting corrupt union and government officials. This week the story broke and it was the state's leading politicians who found themselves under scrutiny. And I'm here to cooperate with whatever the Grand Jury of the United States Attorney wants. I don't have any comment. It doesn't matter whether you talk it or not, if evidence develops that you did som- something wrong, something bad's going to happen to you. And Ron Blome [music playing].

Good evening. Welcome to this edition of Louisiana: The State We're In. This week, we're devoting our entire show to an examination of the FBI's investigation into an insurance kickback scheme that has implicated a number of Louisiana officials. The code name given for that FBI probe is Bri-lab, short for bribery labor. The first stories on this investigation came out of Los Angeles where Justice Department Organized Crime Strike Force was looking into corruption of union health and welfare insurance plans. This was a sting operation similar to the one operating in Washington where agents posed as wealthy Arabs and reportedly caught a number of Congressmen taking bribes. In the Louisiana case the FBI agents were posing as Prudential Insurance Agents and reports indicate their entree into Louisiana's political circles was reputed mafia boss, Carlos Marcello. It's been reported that a number of political leaders in Arkansas, Texas, Oklahoma, and Louisiana took payments in return for promises to use their influence in obtaining city or state health insurance contracts. Beth, the first stories on Bri-lab broke late last Friday night. By Saturday, several

newspapers were quoting unnamed Justice Department sources who claim that at least two former candidates for governor may have been involved in that kickback scheme. The newspapers also reported that the key to the FBI sting operation was a Beverly Hills insurance promoter and underworld figure named Joseph Houser. The FBI used Houser to infiltrate Louisiana's so-called crime syndicate which reportedly led him to a number of important politicians. But in a state that just wound up a multimillion dollar campaign for governor many of those named are already saying that they simply thought the money paid was a campaign contribution. What we do know about the Bri-Lab story at this time is at least 13 state officials including Governor Edwards have been called to testify before a Federal Grand Jury. The campaign records of Edgar Mouton, Louis Lambert, Jimmy Fitzmorris, and Bobby Freeman have all been subpoenaed, along with state campaign records. And records of the state employees group benefits program have been subpoenaed. The center of the investigation is now New Orleans where a federal grand jury began hearing testimony on Thursday. And it's at that point that we pick up our story.

At this time of year most news stories in Louisiana take second billing to Mardi Gras festivities. But this week, in the heart of New Orleans, the krewes may still be rolling, but the attention was focused on the federal courthouse where a parade of state officials came to give testimony before the federal grand jury. The first to arrive on Thursday morning was Governor Edwin Edwards. Scheduled to testify at 9:00, he spent most of the day testifying before two separate grand juries--one hearing testimony on the Bri-Lab investigation and the other examining a 1975 campaign contribution to the Edwards campaign for governor. Campaign officials for defeated gubernatorial candidates, Sonny Mouton, Louis Lambert, and Jimmy Fitzmorris, all arrived at the court bringing with them the financial records of their candidates recent campaigns. The Lieutenant Governor-Elect, Bobby Freeman, came to give his testimony, but was reluctant to talk with reporters. And I'm here to cooperate with whatever the Grand... Many of those subpoenaed did not have a chance to testify Thursday. Louis Lambert scheduled to testify at 1:00 was told to come back the following week because lengthy testimony

was delaying the proceedings. Lambert's attorney, Camille Gravelle, did tell waiting reporters that his client had met with Joseph Hauser and there had been a campaign contribution of $10,000. Well, that's something that wasn't for everybody to know. But, uh, we, we don't feel like in view of the fact that there is going to be testimony, it's gonna have statements in the press in that precise area. I think it is appropriate for you to know that Mr. Lambert Lambert is not denying that particular amount, at all [others talking]. It was a campaign contribution for the purchase of tickets to a fundraising affair. I don't know the exact details. [Reporter Question] I don't even know that. Lambert said he felt pretty good despite the bribery allegations and media attention that he said it probably put an end into any possible appointment to the Federal

Energy Regulatory Commission. Reporters continued their way down the steps of the Courthouse most of the afternoon for any further witnesses. But it wasn't until 4:00 o'clock that Governor Edwards emerged to give his account of what went on inside the grand jury. I can tell you that from no one involved in this situation that I receive any money. I can tell you that since September 1st of 1979, The state's insurance program has been in the hands of a committee formed by the legislature and under a bill which I signed. And that at no time since that committee committee was formed have I made any effort at all to contact any member of the committee to influence any decision that it had relative to the state's insurance program. I can tell you that as late as ?Nov-? October of last year the Attorney General ruled that, uh, the committee would have to [camera flashes] advertise for bids and the committee has been in the process of preparing the specifications.

It has always been understood by all the committee that the advertisements and the awarding of the ?bids? would not take place until after my term as governor had ended on March 10th. I can tell you that I did meet with a man that now has been identified to me as Joseph Houser. We met at the mansion. I spoke to him head up. It is obvious to me that the conversation was recorded. I do not have any concerns about the recorded the conversation, although I did not see a transcript of it. How did you come to meet Joseph Houser? I met him That. request of Louis Lambert, in uh middle, in the middle of November 1979. At the request of Mr. Lambert? What did Mr. Lambert tell you about Mr. Houser? Well that of course would now get into that phase of my testimony involving others, [camera flashes] but I do not think it would be a right thing for me to do at this time. I just prefer to wait until they decide to- themselves to say what happened, or didn't happen.

All until, uh, whatever action the Justice Department will make of this will come done. Did Mr. Lambert ask you to do any favors for Mr. Hauser? He did Not- He just asked me to talk to him. to ascertain that he was not an insurance agent. Um, I have reason to believe, and I will not tell you how, that he had underworld connections. Therefore, I was very careful wi-wi-with the way I talked with him, guarded in my conversation. I played games with him. Uh, I led him to believe certain things that I thought he wanted to believe. I did not know at the time that he was wired and playing games with me. We were playing games with each other. When I got through talking to him because I was very concerned about what, I, uh, what his motive was, where he was coming from, and where he was going because it was obvious to me that what he was telling me things that didn't make sense and were unrealistic. I had a brief meeting at some subsequent date with uh Bo Garrison, Superindendent of State Police and with Judge Reggie my executive counsel, and uh we agreed that if the man did come back in order to try to nail it

down, whatever games he was playing. And remember, I did not then know Did [inaudible] come up in conversation? .It did. I would prefer to let that come from other people. in return for it? Well that was part of the, uh, difficult thing to understand about the conversation. He, uh, uh, uh, he talked about the State Insurance Program and I asked him well what are you interested in? He said well we want to bid, and we're gonna be low bidders and we're gonna save you a million dollars. And I said well man you got no problem. He said its going be bid. The Attorney General has said it's to be bid, a committee is handling it, I haven't contacted the committee, and I do not intend to, and I have not. If you're the low bidder, I'm sure you'll get the job. What did he have to say- He said also they would save a million dollars and I said well that's very good news. But Edwards said he became suspicious of that deal when Houser offered $50,000 a month in payoffs. Because he was Talking about $50,000.

Pay off anybody then. And that was the crux or the thing that tipped you off? That was, that was one of things that convinced me that this fella's not for real. I don't know what you're doing here. I said to myself, I know what you're trying to get at. I know who you're trying to embarrass, or what you're legitimate deal to work something out on insurance, because your figures are way outta of line. for everybody. Edwards said offers of this sort weren't that unusual, although in this case the sums may have been larger, but the governor said he was confident that the evidence would show he had done nothing improper. One person who has figured prominently in news reports on Bri-Lab, but who has not been subpoenaed to appear before that Federal Grand Jury is Commissioner of Administration, Charles Roemer. He has acknowledged meeting with FBI informant Hauser and newspaper reports say that Roemer accepted at least

$15,000 from that undercover agent. Roemer served as a fundraiser in the Mouton gubernatorial campaign, but has refused to comment. Ron, testimony continued today at the Federal Courthouse with the Grand Jury hearing from some of the members of the Board of Trustees of the state's Health Insurance Program. Also scheduled to testify were Lieutenant Governor Jimmy Fitzmorris and State Senator Edgar Mouton. Earlier this week U.S. Attorney John Volz said the subpoenas issued so far may be just the beginning. Let's put it like this. The number today is insignificant as to what will. US Attorney John Volz giving a terse summation of the case which may well turn out to be the most far-reaching investigation ever undertaken by a United States Attorney in Louisiana. Voltz flanked by FBI spokesman Harold Helderhoff and L. Eads Holg, the Chief of the Organized Crime Strike Force, also told newsmen today that the highly secret Bri-Lab investigation would extend far beyond the four southwestern states mentioned so far in the investigation. And Volz

said he would have preferred if the probe would have remained secret. Frankly it had the system worked the way that it was designed to work, uh, we wouldn't have to do this. But it hasn't. So I think we need to keep in perspective the fact that no one has been indicted. And that we should all be very, very careful about inferring guilt or any illicit involvement on the part of anyone until such time as a grand jury has acted in this matter and any persons charged have been afforded due process of law. Volz added that as a result of the disclosures, the undercover phase of the operation would be halted, But the FBI field work would continue. The U.S. Attorney said he expected the Grand Jury investigation to last several weeks. He would make no predictions about indictments. All three men at the news conference were extremely cautious in their remarks

emphasizing the fact that no inferences should be drawn from the news leaks surrounding the case. At his news conference, U.S. Attorney Volz was asked about probable charges from defense attorneys of entrapment by federal agents. We really can't comment on any possible defense. Really what you're saying probably has some merit in that entrapment is a legitimate defense which is raised in, um, many cases. Without trying the case in public, which we obviously cannot do now, we just can't answer that. Well, did you start to go after these politicians or did your investigation start somewhere else? We didn't go after anybody. The opportunity presented itself. The FBI did its job, the Strike Force did its job, the U.S. Attorney's office did its job. Both the FBI's Abscam operation in

Washington and the Bri-Lab Sting in Louisiana shared some common characteristics. They involve the spending of huge sums of money in pursuit of corrupt public officials. They involved agents using con game tactics and they involved the use of elaborate fronts and undercover setups. The story sounds like something out of an old spy movie. FBI agents working undercover in a suburban New Orleans motel. United Press International reports say that FBI agents stayed in the Travel-In Motel on Airline Highway, a motel that overlooks the offices of Carlos Marcello, a reputed underworld crime boss. That office is located behind the Town and Country Motel. From their rooms, the FBI agents could view the Marcello building. According to UPI, the FBI used that room for videotaping and electronic bugging during the probe. Reportedly the agents rented the room since August in the names of Hartley and Hartley. Four or five men were said to have stayed in the rooms, mostly keeping to themselves. On Saturday, when Bri-Lab broke, the men were gone, and

both the motel management and the FBI has declined to comment on whether the rooms were in fact used for surveillance on the reputed underworld figure. At Marcello's office, a staffer refused to answer any questions and told reporter Nancy Weldon that Marcello was not expected in. Marcello's attorney in Washington, Jack Wasserman, says he's aware of some vague stories involving Marcello. But he says he knows of no wrongdoing on the part of his client. During the Bri-Lab undercover investigation, some FBI agents posed as sales agents for the Prudential Insurance Company. Prudential spokesmen acknowledged that they gave health insurance plan information to the FBI, but they deny any knowledge that they knew of the FBI sting operation. In New Orleans, Prudential officials would only say that when the story broke on Saturday they were as surprised as anyone. One of the reasons why there was so much confusion about this story when it broke last weekend was the fact that Louisiana's group insurance program has already been the subject of a great deal of extensive

investigation. Charges of corruption and fraud weren't anything new, as we see in this report based on a story we presented last summer. 80,000 state employees and 198,000 dependents are protected under Louisiana's group health insurance plan. It is a 50 million dollar a year operation that is run through a complex series of private contractors in conjunction with the state. The benefits provided through the program have not been questioned, but the administration of the program has been at the center of a great deal of controversy. Last summer a special legislative committee was formed to look into the management structure of the program. After a number of state representatives, including V.J. Bella of Berwick, complained that, among other things, claims processing had fallen months behind schedule. We have allegations Friday that came before our subcommittee administrative, uh, expenses being hid in the group insurance program. We heard of cost-plus contracts, open-ended spending, spending

splitting of insurance premiums. Uh, we heard of employees being hired to a state, I mean the sheriff's program, and the state group insurance and the state picking up the tab. We heard of, uh, employees from the DOA's office that's being paid out of group benefits. We hurd a lotta allegations that day. And, uh, what I've done to... As legislators looked into the program, they found that group health was being managed by an intricate tangle of private consultants. At the top of the group insurance management pyramid was the Division of the Administration which organized the program in 1973. However, in charge of the actual day-to-day management was the Continental Assurance Company or CNA. CNA in turn contracted for computer services with Ad- Serve, the California corporation. CNA operated the system on a cost plus contract for $18,000 a month plus expenses,which amounted to $1 million last year. During the month-long series of hearings, lawmakers heard a number of allegations concerning the management of the program. They were told that the state was locked into

costly long-term contracts that cost millions. They heard allegations that Ad Serve was formed merely to move state workers out from under civil service. They were told that an accountant in the Health Insurance Program was instructed by top administration officials to hide millions of dollars in expenses. They heard charges of insurance fee splitting on extra insurance coverage offered by the plan in violation of state law. And the lawmakers heard allegations that contractors were running up lavish expense accounts which the taxpayers must eventually absorb. The first person to bring up the numerous charges was Hubert Linscomb, a manager in the group health plan. After Linscomb went public with his charges he was fired. Also joining Linscomb in charging mismanagement was Bob Dornblaser, the former manager of the plan for the Division of the Administration. Nevertheless, as the investigation began to gather attention in June of 1979, Governor Edwards dismissed the complaints as sour grapes. Some hearsay testimony by disgruntled employees that got fired

nor is it an accusation. Uh, to the extent that it is, uh, the legislative com- investigation and if any substance is found, uh, in these statements, then of course I will address it. I do not have any reason to believe that about, uh..., the insurance program. These same legislators that quick to grab headlines by making irresponsible charges are the first ones to call us when the claims aren't. Although Governor Edwards said that both men acted in retaliation for being fired, Bob Dornblaser said he didn't resign until after his complaints were ignored by the Division of Administration and the governor. Eventually, I went to the governor on March 23rd this year. I met with him at the mansion and went over the problems with him. What was the response? The governor told me that he would look into my concerns and that he would get back with me. Of course we heard in testimony the governor this week told the committee that

disgruntled employees were making lodging complaints and they should have worked within the system before. How did that make you feel? Well, uh, the only thing I could think is that the governor had some misinformation first about being fired because I was not fired; I resigned. And second that he had forgotten about our meeting that we had in March at the mansion. Now, gentlemen, the purpose of my appearing here is not to defend the program or to defend Joe Terrell or to defend Charlie Roemer or to castigate any of the disgruntled ex-employees who suddenly are privy to all this horrible information that they kept locked in their bosoms during all the months they were on the payroll. The purpose of my- On Tuesday, June 19th, Governor Edwards again responded to the insurance probe, appearing before the House Appropriations Committee with Division of Administration Chief Charles Romer. Edwards asked the lawmakers to hear both sides of the story. However, he made it clear that Roemer and his assistant, Joe Terrell, were the men responsible for the

program. And I think in fairness before, uh, people rush to judgment and make statements like "we've been had" uh, before the other side is heard, uh, that you ought to listen to everybody involved in the program. We may have been had, and I'm not going to say here today we haven't been had. But I don't think any member of this committee knows any more about the program than I do, and I'm going to tell you now that I'm not in a position to affect a judgment. There's only one certainty that I'm going to make, and that is you're not going to find any violation of any rules or regulations or any errors on my part. Uh, maybe people with whom I had trust and confidence will be found with sticky fingers. I don't believe it. I have no reason to believe it, but I have no concerns at all about it. I appreciate the fact that some of you have expressed some concerns to me. But don't concern yourself about it. Use a big hacksaw, get in there, uh, open up the jungles, see what you can find, and I assure you any reasonable recommendation you make to making the program better, I will adopt.

The legislature did act on the matter taking the program out from under the direct control of Charles Romer and his assistant Joe Terrell. By September 1st, the entire structure was reorganized with a 10 member Board of Trustees overseeing the State Employees Benefits Program and things were supposed to change. The attorney general ruled last November that the contracts with Continental Assurance Corporation or CNA were illegal because they had not been awarded by public bid. The Board of Trustees has not at this time selected another company, but was in the process of drawing up specifications for a new contract. And it is that new contract that may be the focus of a grand jury inquiry. The executive Director of the Board of Trustees James McKelvin, and several other board members, have been subpoenaed to testify in New Orleans on Friday before the federal grand jury. The FBI has already expressed interest in knowing if anybody had put pressure on the board to consider any specific insurance company. McKelvin and his staff spent most of the day gathering records for the grand jury appearance. McKelvin has only been with the crisis ridden program since September. Said

he was taken by surprise by the federal subpoenas and he likened it to a man waiting for a friend on a corner and being hit by a train. By the way, some members of that special legislative committee have voiced some concern that members of the federal investigation will not be looking into some of those allegations of past abuses. As the Bri-Lab story broke across the headlines of Louisiana this week, it was being called the biggest scandal since the famous Louisiana Hayride. For a look back at that infamous period of Louisiana history we have this report prepared by Amanda Ponder. Huey Long reportedly once said, If people ever use the power I've given them without me to direct them, they'll all wind up in jail." And he was proven right. Long's assassination in 1935 left a powerful organization without a leader, and the once mighty political machinery began to break down and eventually came to a grinding halt. Huey's successor was Richard Leche. His years in office were marked by what came to be called the Louisiana Scandals. The federal government began its

investigation into state abuses in June of 1939. It began at LSU and spread throughout every department in the state. James Monroe Smith, the president of LSU, was accused of making investments with money he had borrowed by using the university's name. He fled to Canada but was brought back under twenty-seven indictments including charges of embezzling $400,000 of university money. He was sentenced to eight to 24 years in jail. Shushan, one time president of the levee board, was sent to jail for 2 and a half years on charges that he bilked the state of $132,000. The grand jury found party treasurer, Seymour Weiss, guilty of manipulating the sale of a half million barrels of illegal oil. In the end, Richard Leche, the first New Orleanian governor in modern times also held the dubious distinction of the first governor to resign in the face of scandal. He was later sentenced to 10 years in jail for fraud, and Lieutenant Governor Earl Long completed his term. All in

all, 250 indictments were handed down -- the largest federal investigation into state political abuses ever. I suppose that puts some historical perspective on the events we've seen this past week. But the Bri-Lab story promises to be in the headlines for weeks to come. U.S. Attorney John Volz plans to hear testimony for at least several more weeks and if there are indictments, the trials may well stretch into the next year. Most of the charges we have heard so far, then violations of state laws, but the federal government can prosecute under an anti-racketeering law, a law whose scope is broad enough to have some officials worried. Beth, there's one final note in the news this week. Governor-Elect Dave Treen has appointed Paul Hardy to be the secretary of the State Department of Transportation and Development. Hardy, as you recall, was an unsuccessful Democratic candidate for governor who later endorsed Treen's candidacy. We'll be back next week. We hope you join us then. We'll have more of the Bri-Lab story and we'll have a report on the death penalty in Louisiana. Until then I'm Beth George. Good evening. [Closing music]

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