State ethics watchdogs launch investigation into former Secretary of State Shemia Fagan

The investigation is expected to take about six months, unless it’s delayed because of a pending federal investigation

By: - July 17, 2023 5:10 pm

Then-Secretary of State Shemia Fagan presides over candidate filing on Tuesday, March 8, 2022. (Ron Cooper/Oregon Capital Chronicle)

State ethics watchdogs have launched a full investigation into former Secretary of State Shemia Fagan’s conduct while in office, including her $10,000-per-month consulting gig for marijuana entrepreneurs and whether she accurately reported her income and expenses to the state.

Fagan, a Democrat viewed as a rising star, resigned in May following revelations that she took a side job for the owners of a troubled cannabis company while her office audited the state agency that regulates the marijuana industry. After a preliminary review, the Oregon Government Ethics Commission decided in a private meeting Friday to move ahead with a full investigation.

“There appears to be a substantial objective basis to believe that Shemia Fagan may have engaged in a prohibited use of position and may have failed to disclose conflicts of interest,” the preliminary report said. “There also appears to be a substantial objective basis to believe that Shemia Fagan may have failed to report required information on her (statements of economic interest, an annual disclosure required of people who hold elected office).” 

Fagan is also under scrutiny from federal prosecutors, and a potential criminal investigation could delay the state ethics probe. The ethics commission on Friday voted to suspend investigations into six former Oregon Liquor and Cannabis Commission employees accused of using their positions to acquire rare, expensive bottles of bourbon to avoid interfering with an ongoing criminal investigation by the state Department of Justice.

If the Fagan investigation proceeds without interruptions, the commission will have 180 days to investigate and commission staff can subpoena witnesses and documents. Staff will prepare a written report for commissioners, who will consider the report during a public meeting and determine whether Fagan violated state ethics laws.

The commission provided its preliminary report to the Capital Chronicle on Saturday, a day after releasing it to other media outlets. Ron Bersin, the commission’s executive director, said in an email Monday that other media outlets received the report because they emailed him directly, while the Capital Chronicle reporter followed instructions from commission staff to email a general agency email address and followed up by phone.

Cannabis consulting

The commission received four complaints in late April and early May, two on whether Fagan’s private consulting work for Veriede Holding LLC violated state ethics laws and two on whether she failed to accurately report income on the annual statement of economic interest she had to file as an officeholder.

Veriede Holding is owned by Aaron Mitchell and Rosa Cazares, prominent Democratic donors who also own the troubled La Mota marijuana retail chain. Fagan in February accepted a $10,000-per-month consulting contract for Veriede to help Mitchell and Cazares expand their cannabis empire to other states.

Susan Myers, an investigator for the commission, reviewed the complaints and submitted a preliminary report to the commission, recommending it launch a more thorough investigation. She wrote that it appeared Fagan was only offered the  consulting job because she was secretary of state. Fagan met Mitchell and Cazares during her 2020 campaign, and there was no indication that they publicly advertised the job.

Fagan’s attorney, David Elkanich, wrote in a response to questions from the commission that Fagan became friends with Cazares and Mitchell after meeting on the campaign trail and that their daughters played on a basketball team Fagan coached. 

“It was only during a casual, social conversation that Ms. Fagan mentioned that she was applying for jobs outside of Oregon to earn supplemental income,” Elkanich wrote. “Ms. Cazares and Mr. Mitchell offered Ms. Fagan an opportunity to contract for services with their company because she was a trusted friend and a skilled researcher.” 

Fagan blamed her $77,000-per-year salary – which is among the lowest in the nation for secretaries of state – for why she needed to find outside employment. State lawmakers have asked voters to approve a new commission to set salaries for elected officials. 

Cazares first mentioned the job around Feb. 1, according to the commission report. A few days later, on Feb. 9, Fagan called the ethics commission and spoke to investigator Monica Walker.

Fagan told Walker she had questions about whether it would be a conflict of interest to use her attorney’s license to contract with an entity that could be involved in an audit. At the time, Fagan’s office was auditing the Oregon Liquor and Cannabis Commission, which regulates the marijuana industry, and state auditors had spoken to Cazares for the audit. 

Walker sent Fagan a follow-up email with copies of advisory opinions the commission had provided former Gov. John Kitzhaber and former Attorney General John Kroger about outside compensation.

Kitzhaber, a former emergency room physician who regularly spoke about health policy in the eight-year gap between his two stints as governor, asked for advice on continuing to accept paid speaking engagements after returning to the governor’s office. The commission told him he would have to evaluate each invitation and turn down any that were extended to him because of his position as governor. Kroger received similar advice when he asked about continuing teaching at Lewis and Clark Law School. 

Along with sending those opinions, Walker urged Fagan to send an email with details about her situation so the commission could provide better advice. She asked Fagan again for a written request after a second call the following week, and Fagan declined, saying she didn’t want to create a public record. 

“Secretary Fagan stressed that she was reluctant to send a written request for advice and stated that her plan moving forward would be to remove herself from any decisions in regard to an OLCC audit,” Walker wrote in a memorandum cited in the preliminary report.

The memorandum continued: “I reiterated the commission could provide a more accurate and clear answer if she would put her question(s) in writing along with providing the details. Once again, Secretary Fagan stated that she was reluctant to do so due to it being a public record.” 

Instead, Fagan opted to recuse herself from the audit after it was mostly completed. She announced her recusal to staff on Feb. 15 but kept it from the public until April 28, the day her office released its audit of the Oregon Liquor and Cannabis Commission.

During a May press conference, she defended that decision. 

“An opinion would have gotten me out of recusing myself,” Fagan said. “I chose instead to voluntarily take the most restrictive limitation on myself.” 

State law requires public officials to publicly declare conflicts of interest, and an internal email to senior staff announcing that Fagan was recusing herself because she was going to start work for an unnamed cannabis company didn’t cut it, the ethics commission’s report said. Any discussion or actions she took on the audit between Feb. 24, when she accepted the job, and April 28, when she announced her conflict, would constitute a conflict of interest and violate state law, the report continued. 

Connecticut connections

The report additionally examined reports that Fagan spoke with Susan Bysiewicz, the lieutenant governor of Connecticut, on behalf of Mitchell and Cazares.

Because Oregon doesn’t have a lieutenant governor, the secretary of state is next in line for the governorship and Fagan attended meetings of the National Lieutenant Governors Association and Democratic Lieutenant Governors Association with Bysiewicz. There’s no indication that the two women would have known each other if not for their elected roles. 

Elkanich, Fagan’s attorney, said Fagan and Bysiewicz had developed a personal friendship. Fagan’s questions about the cannabis industry in Connecticut came in the context of personal conversations about family and women’s college basketball, he wrote. 

The commission’s initial report concluded that Fagan used connections she made as secretary of state to advance her private business interests. 

“It appears that but for holding her position as secretary of state, Ms. Fagan would not know or have access to Ms. Bysiewicz,” the report said. “It also appears that Ms. Fagan may have used her position to obtain information that would not only advance the interests of Veriede in Connecticut but also enable Ms. Fagan to complete the work for which she was contracted.” 

Scrutiny of economic forms

Two complaints rested on whether Fagan accurately represented her income on her statements of economic interest for 2021 and 2022.

Before she was elected secretary of state, Fagan worked for HKM Employment Attorneys. She listed income from the law firm as “post-employment income” on her 2022 statement, but she also listed the firm as a current employer on LinkedIn and told a media outlet that she held a “limited private contract” with the firm, according to complaints. 

The commission’s investigator concluded that Fagan might have needed to list the law firm under questions about any source of income potentially affected by her elected job. The secretary of state registers businesses, so that requirement could apply to any company that does business in Oregon and pays the secretary of state.

While reviewing her statements of economic interest, the commission found that she added information about four out-of-state trips she took as secretary of state in 2021 to her 2021 statement, which covered income and spending in 2020. Only one of those four trips made it to her 2022 statement, which covered 2021. That could also be a violation, the report concluded. 

Commission process shrouded in secrecy

Commissioners voted to investigate Fagan in an executive session, which was closed to the public. Journalists could attend but couldn’t report on deliberations. 

The ethics commission isn’t bound to the same state laws governing executive sessions that it enforces for other government bodies.

Most boards can only meet in executive session without public scrutiny for specific reasons, such as negotiating real estate transactions, discussing litigation with the board’s attorney or reviewing an employee’s performance. Any decisions and votes – such as authorizing a raise for an employee or selling land – are allowed only in open meetings.  

But a separate state law allows the ethics commission to hear the details of initial investigations and vote on whether to open a full investigation in an executive session, leaving the public in the dark. Preliminary reports are subject to public records requests after that meeting but not proactively posted online.

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Julia Shumway
Julia Shumway

Julia Shumway is the Capital Chronicle's deputy editor and lead political reporter. Before joining the Capital Chronicle in 2021, she was a legislative reporter for the Arizona Capitol Times in Phoenix and reported on local and state government and politics in Iowa, Nebraska and Bend. An award-winning journalist, Julia also serves as president of the Oregon Legislative Correspondents Association, or Capitol press corps.

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