Giuliani Lobbies for WorldCom

Posted July 18, 2003 at 6:52pm

Former New York City Mayor Rudy Giuliani (R) and his new consulting firm are quietly working on Capitol Hill to block legislation that could cost Giuliani and his firm tens of millions of dollars.

Giuliani Partners LLC, which stands to gain $150 million if its restructuring reorganizational plan for WorldCom is approved, is lobbying against a measure that could make it more difficult for the telecommunications giant to emerge from bankruptcy.

Tony Carbonetti, Giuliani’s former chief of staff and now a business partner at Giuliani Partners, spoke last week with Rep. John Sweeney (R-N.Y.) to try to persuade him to ditch his proposal to ban WorldCom from winning any future contracts from the federal government.

The legislation, which Sweeney hopes to attach to an appropriations bill this week, could make it more difficult for WorldCom to emerge from bankruptcy this fall.

That could cost Giuliani. The former mayor and his consulting firm have been working with a major investor in WorldCom, David Matlin, to craft a restructuring plan that would make them all rich.

Matlin owns about 10 percent of WorldCom’s debt. If Giuliani’s reorganizational plan in approved by a New York bankruptcy court, Matlin’s investment could be worth billions.

Under an agreement reached with Giuliani, Matlin could pay Giuliani Partner as much as $150 million for crafting the plan and lending Giuliani’s credibility to the cause.

Matlin also has said that he would like to replace WorldCom’s newly named chairman with Giuliani. But it is unlikely that Giuliani would accept the post.

Still, Sweeney’s efforts on Capitol Hill could jeopardize Giuliani’s hopes for WorldCom by blocking a major source of revenue for the company.

WorldCom is the eighth-largest recipient of federal contracts, hauling in $800 million last year to provide phone, Internet and other telecommunications services to 75 federal agencies.

“WorldCom is a key component of our nation’s economy and communications infrastructure,” former WorldCom executive John Sidgemore told Congress last year. “Both commercial and national security interests rely upcon WorldCom’s operations continuing without disruption.”

In the last year, the Mississippi-based company has continued to win contracts from the government despite defrauding investors out of billions of dollars, filing the largest bankruptcy in history and paying a $500 million settlement with the Securities and Exchange Commission.

Most recently, WorldCom won a $34 million contract in May to set up and run a wireless phone network for U.S. officials in Baghdad.

Former New York Police Commissioner Bernard Kerik — now an executive with Giuliani Partners — advises the U.S. forces in Iraq on how to keep the peace in Baghdad.

The wireless contract drew the ire of several Members of Congress, including Senate Governmental Affairs Chairwoman Susan Collins (R-Maine), who launched a probe into why the government continues to hand over contracts to the company.

On the House side, Sweeney announced plans to push legislation that would bar WorldCom from competing for government contracts.

“I’m not interested in destroying the company,” Sweeney said. “I’m interested in sending a very clear message that Congress won’t tolerate that kind of malfeasance.”

As Sweeney laid plans last week to attach his provision as an amendment to legislation funding the Transportation and Treasury departments, he was visited by Carbonetti, one of Giuliani’s partners.

“His people have been in to see me,” Sweeney said, referring to Giuliani.

According to Sweeney, Carbonetti urged the Congressman to drop the effort or find a compromise with WorldCom’s debtors.

Carbonetti suggested that Sweeney should instead offer an amendment that would steer a portion of the profits WorldCom receives from government contracts to pay off debt. Sweeney said he found that proposal interesting.

Sweeney and his staff said that representatives of Giuliani had met with other Members of the Appropriations Committee, but several lawmakers contacted by Roll Call said they had not heard from Giuliani.

A spokeswoman at Giuliani Partners did not return a phone call seeking comment. A spokeswoman at WorldCom, now called MCI, declined to comment.

Meanwhile, Sweeney faces an uphill battle to add his amendment to the spending bill this week.

House Government Reform Chairman Tom Davis (R-Va.) has asserted his committee’s jurisdiction over the issue, arguing that the issue should not be added to a spending bill without careful review.

“It’s a stupid amendment,” said Davis, whose northern Virginia district is home to thousands of MCI employees.

But the fight between Sweeney and Giuliani could be more than just a battle over an arcane policy matter — it also could presage a brewing political fight between the two GOP heavyweights from New York.

Sweeney and Giuliani each have their eye on the 2006 gubernatorial race in New York and could square off against each other in a primary.

If both Republicans enter the race, the contest could be bloody.

Sweeney, who represents a district that includes the state capital of Albany, draws support from the more conservative Upstate New York and is thought to have the backing of current GOP Gov. George Pataki.

The New York Post reported last week that Giuliani — who became a hero in the weeks after the Sept. 11, 2001, terrorist strikes — has told friends that he is planning to run for governor in 2006.

Giuliani’s moves on Capitol Hill offer a rare view into how he has profited in the private sector since leaving the mayor’s office. Giuliani Partners has served as a convenient way for the former mayor and many of his closest political advisers to cash in on their years of work on security and law enforcement issues.

Other Giuliani partners include Tom Van Essen, the former New York fire commissioner; Richie Scheirer, the onetime head of the city’s Office of Emergency Management; Sunny Mindel, his mayoral press secretary; Carbonetti, Giuliani’s chief of staff; and Kerik, the former police chief.

The consulting firm reportedly earns about $100 million a year, providing a range of security-related work for clients.

Giuliani himself made more than $4 million for compiling a study for the Mexican government on how to reduce crime in Mexico City.

Entergy hired Giuliani to help it bolster security at its nuclear power plants, while Nextel paid Giuliani to improve radio systems used by fire departments and police officers and the thoroughbred racing industry brought Giuliani in when it needed to recover from a betting scam.

When he started the firm, Giuliani pledged not to sign up unscrupulous clients. Indeed, he is said to have turned down pricey offers from Enron Corp., Arthur Andersen and Tyco.

But he agreed to represent Merrill Lynch – and was later burned when the brokerage house agreed to pay $100 million to head off a lawsuit from New York Attorney General Eliot Spitzer over the firm’s rosy stock valuations.

Giuliani, Carbonetti nor anyone at Giuliani Partners has registered to lobby Congress, though Congressional rules give lobbyists the flexibility to report their visits to Capitol Hill months after the fact.

Giuliani does not spend much time in Washington, but it is clear that he is not afraid to talk to Members and the administration about issues facing his clients.

Last year, when drug-maker Purdue Pharma wanted the federal government to help block illegal sales of its popular painkiller, it turned to Giuliani and his firm.

According to a profile of Giuliani in New York magazine, Giuliani and Kerik arranged for a meeting between the company’s executives and ex-Rep. Asa Hutchinson (R-Ark.), who was the head of the Drug Enforcement Agency at the time.

“The mayor and I just met with Asa Hutchinson, his staff, and the people from Purdue,” Kerik told the magazine. “We don’t want Purdue put in a position where it winds up being taken over by the courts.

Neither Purdue, Pharma nor Giuliani filed a lobbying report disclosing how much money Giuliani’s firm made from working on the issue.

According to Congressional ethics guidelines, people who spend more than 20 percent of their time lobbying are required to register with the House and Senate as lobbyists.