Clash by Stefanowski, Lamont over COVID testing contract makes issue of Connecticut’s ethics code
Not yet a declared candidate for governor, Republican Bob Stefanowski is running hard at Gov. Ned Lamont over the state’s two COVID-19 testing contracts with Sema4, a company in which first lady Annie Lamont’s venture capital firm, Oak HC/FT, is a minority investor.
Stefanowski’s criticism, delivered via talk radio, opinion pieces and social media, has prompted the first sharp exchanges between the Democratic governor and the Republican who is expected to challenge him in 2022, a rematch of the 2018 race narrowly won by Lamont.
In interviews with CT Mirror, Stefanowski and Lamont clashed over whether the governor, who has recused himself from transactions affecting companies in which Annie Lamont is invested, should have barred Sema4 from providing what then was scarce COVID testing.
“Her venture capital portfolio can do business with 49 other states. They can do business with any country in the world,” Stefanowski said. “I mean, why did we need to get an exception that they’d be allowed to do business with Connecticut?”
Only four of the 10 companies that responded to the state’s request for testing proposals in the pandemic’s early months were certified to do COVID-19 testing, Sema4 among them. The state quickly contracted with all four, the terms negotiated by the comptroller’s office.
“I think we saved a lot of lives by moving fast,” Lamont said.
Stefanowski said the testing capacity provided by Sema4 came at the cost of public confidence in government.
“If I were the head of Sema4, or if I were the head of the state of Connecticut, I would have been damn sure I would have had a lot of disclosure. I would have had a lot of discussion around it,” Stefanowski said. “And I would have been very sure that they were the only one on Earth that could provide it.”
The early exchanges between Lamont, a declared candidate for reelection, and Stefanowski, who shows every sign of planning to become one, are bringing into the spotlight an Office of State Ethics wounded by staffing cuts and an ethics code drawn by lawmakers that narrowly defines conflicts of interest.
No “exception” was required for Sema4 to contract with Connecticut under state ethics laws or the 16-page advisory opinion that offers guidance to the Lamonts as they navigate the difficulties inherent in the marriage of a governor intent on growing the tech sector in Connecticut and a venture capitalist who makes a good portion of her living there.
As Lamont notes, Annie Lamont is someone other governors might like to know, a potential source of leads about promising companies they might like to see in their states.
“Annie has helped create dozens of great companies representing thousands of good-paying jobs,” Lamont said. “And it’s a lot easier to locate those jobs out of state so there’s no optics, no perception, no problems. And that’s what we’re doing.”
The smell test
This week, the governor faced questions about state incentives available to a financial technology company, Digital Currency Group, relocating from New York to Stamford. Oak HC/FT was an early investor, though no longer.
House Minority Leader Vincent J. Candelora, R-North Branford, is the only one of the legislature’s top leaders who says the Sema4 contract doesn’t pass a “smell test,” even if it violates no ethics rules. Candelora says the rules should be reviewed, but he offered no suggestion for changes.
Others suggested that Stefanowski was playing politics.
After taking office in 2019, Lamont posed a series of questions about complying with the ethics code and agreed to place his investments under the control of an outside attorney, a step that ethics officials say amounted to a blind trust.
The advisory opinion issued on May 16, 2019, by the Office of State Ethics advised the Lamonts they were in compliance so long as the governor and first lady recused themselves from “any official action that directly and specifically involves” Oak HC/FT, the related Oak Investment Partners, or companies in their portfolios.
“The Governor and Mrs. Lamont would commit to recusing themselves from taking any official action that could reasonably be expected to result in a direct financial benefit or harm to themselves, or to an associated business, to a degree that is different from or greater than the universe of individuals or businesses that would be affected generally by such official action,” the office advised.
It is the same standard applied to members of the part-time legislature. They can act on matters affecting their professions and outside employers, as long as they do not benefit financially to a degree different from others in the same profession or industry.
As a result, legislators are free to vote and advocate on issues of interest to their professions and employers without public disclosure. Last year, the Office of State Ethics proposed a bill that would have required lawmakers to state for the record when their employer had a direct interest in a bill, but it died from inaction in the pandemic-shortened session.
Peter Lewandowski, the executive director of the Office of State Ethics, said the underpinnings of the ethics code are a mix of prohibitions and transparency. Disclosure, he said, may be the best protection for the public.
The current ethics rules require certain state officials and their spouses, including the governor and lawmakers, to file annual reports disclosing sources of income, but the reports are of limited use in identifying potential conflicts. A lawyer, insurance broker or Realtor, for example, would identify their firm — not the clients who pay them — as a source of income.
In the case of the Lamonts, their financial disclosure statement lists three dozen investment funds with names like Oak HC/FT Associates LLP, Oak HC/FT Associates LLP II, and so forth. They are sources of income to Annie Lamont, not individual investments in companies such as Sema4.
Recognizing the limits of the statutory disclosure statements, the Office of State Ethics and the Lamonts agreed on a more useful, if voluntary, filing: a recusal list of companies Oak HC/FT and Annie Lamont provided to the governor’s office.
According to the advisory opinion, the list is meant as “a checklist on a case-by-case basis to assist in identifying instances where recusal by the Governor or Mrs. Lamont would be necessary.”
A review of the list by CT Mirror found that Sema4 was the only one doing business with the state, and Lamont says neither he nor his wife played any role in Sema4 seeking or obtaining a state contract, nor were they in a position to discourage Sema4 from responding to the state’s testing RFP.
“Oak has 2%,” Lamont said. Stefanowski “makes it sound like we own this fricking company. You know, Annie and Ned Lamont had like one-tenth of 1%. We’re not on a board. We’re not anything here. And what do you want us to do?”
The two figures, 2% and one-tenth of 1%, are not contradictory, because Oak’s stake and Annie Lamont’s are not synonymous.
Oak HC/FT or the Lamonts have not disclosed the firm’s investments in Sema4, but SEC filings show its stake was worth $66 million when the company went public in July 2021 with a valuation of $3 billion. The firm’s stake on that day was equal to 2.2% of the valuation.
The governor’s second assertion that his family’s benefit from the Sema4 contracts was indirect and far lower, perhaps one-tenth of 1%, cannot be corroborated by what is public, but it reflects how venture capital firms make their money and why the benefits of specific contracts to a portfolio company cannot be neatly ascribed to Oak or Annie Lamont.
Venture capital firms typically raise money from insurance companies, pension funds, educational endowments and wealthy investors. Their compensation comes from a share of any profits realized by their investors, usually between 15% and 30%, and management fees, usually 2% to 2.5% of the capital committed to a fund, that cover salaries and overhead.
The Sema4 issue
Neither the governor nor first lady would be interviewed prior to the publication by CT Mirror of a detailed examination of the Sema4 contracts and Oak HC/FT’s investments. More recently, Lamont answered limited questions in two brief interviews when approached by a CT Mirror reporter after public events.
Lamont had no opinion on the sufficiency of the ethics code or what lessons might be drawn from the Sema4 controversy.
“I’m still figuring it out, to tell you the truth. Last year, you had to move fast. If you didn’t move fast, we would have been dead,” Lamont said. “But then you’ve got to show the decisions you made, why you made them and how they came out so people have confidence in what those decisions were, right?”
Stefanowski said Lamont did not adequately explain the decision to contract with Sema4.
“It’s certainly a massive lack of judgment to be in that situation with emergency authority in the middle of COVID to do this and not have any discussion whatsoever with the people that are paying the bill, which is the taxpayers of Connecticut, prior to entering into it,” he said.
Max Reiss, the governor’s communications director, said the administration followed the guidance of the ethics office, and the existence of Oak HC/FT’s investment in Sema4 became public knowledge with the publication of a story by The Hartford Courant on June 14, 2020.
“Every measure was taken to ensure proper notification and compliance, both with the Office of State Ethics and the rigorous recusal process which was laid out in the early months of the Lamont administration,” Reiss said. “I think the front page of the Sunday edition of The Hartford Courant is a significant version of disclosure.”
What must elected officials disclose?
Stefanowski, an investor who has held high-ranking executive posts at GE and other companies, was asked whether, if elected, he would bar any company in which he was a shareholder from doing business with Connecticut.
“I think it depends on the value of the investment and, I think, the level of influence you have over that investment,” Stefanowski said. “If you’re a shareholder in GE like I am today, I don’t have any rights other than voting as a shareholder.”
Connecticut currently has no requirement that elected officials disclose the value of their investments. The Office of State Ethics proposed a decade ago that the disclosure statements require listing investments according to a range of values. It did not pass.
(The legislature also has passed budgets that reduced the ethics staff by one-third since 2007, from 21 to 14.)
Less aggressive on the issue is former House Republican Leader Themis Klarides, a declared gubernatorial candidate whose marriage poses its own complications: Her husband, Greg Butler, is the executive vice president and general counsel and a shareholder in Eversource, a utility regulated by the Public Utilities Regulatory Authority, whose members are appointed by the governor.
A campaign spokesman, Sebastian Rougemont, said there is no conflict as utilities are regulated by PURA, not the governor.
“Themis’ marriage, while immaterial in this regard, is well known to the public and does not excuse Gov. Lamont for his failure to be transparent,” he said. Klarides declined to be interviewed.
Stefanowski initially declined comment on whether a governor’s marriage to a top Eversource executive would be a concern, then said, “The governor should be beyond reproach when it comes to potential conflicts of interest with any company regulated by or doing business with the state of Connecticut.”
Candelora, who succeeded Klarides as the House minority leader, said the Lamonts’ investments should lead to a reappraisal of ethics laws, though his bigger concern may lie with the Freedom of Information Act: The refusal of the comptroller’s office to release pricing information it deemed proprietary added to cynicism about the contract.
“The way the Sema4 procurement occurred, and the lack of transparency surrounding it, does pose problems and, I think, points to some of the issues that we may have with our ethics laws,” Candelora said. “It’s getting play, because it doesn’t pass the smell test.”
None of the other leaders, most of them Democrats, offered a similar assessment.
Senate Minority Leader Kevin Kelly, R-Stratford, declined comment on the Sema4 contract and the ethics code. “I’d prefer to look at what’s transpired with Sema4 before I comment,” he said. “I would prefer to exercise an abundance of caution here.”
House Majority Leader Jason Rojas, D-East Hartford, said every indication is that the Sema4 contract was not a conflict of interest under state law, and it met a desperate need.
“So then it becomes a question of, who wants to make it appear more like a conflict? To what degree does it get politicized?” Rojas said. “I think that’s what’s happening here with this particular case.”
Senate Majority Leader Bob Duff, D-Norwalk, said, “The Sema4 story seems to be an issue for the anti-mask, anti-vax crew, of trying to find some sort of bogeyman to anything that could possibly be of use during a pandemic. And so I think they’re just grasping at straws.”
House Speaker Matt Ritter, D-Hartford, said Stefanowski’s attempt to characterize the Sema4 testing contract as profiteering was unsupported by the facts.
“It’s not like the Lamonts needed this company to do well for their personal future,” Ritter said. “I don’t see it. I don’t get it. There’s no evidence to back that up. It also sorts of defies logic.”
Senate President Pro Tem Martin M. Looney, D-New Haven, agreed with Stefanowski on one point: Both men say the State Contracting Standards Board, a watchdog that Lamont has let languish with just one employee, should get more funding.
Asked if the board should have reviewed the Sema4 contract, Looney replied, “I don’t want to comment on that.”