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Old investigation could haunt Gallagher

Newly revealed details from a closed inquiry may aid the education commissioner and U.S. Senate hopeful's political foes.

In a political career of ups and downs, Republican Tom Gallagher has emerged as the affable and untouchable public official _ scrutinized but never charged by prosecutors.

In 25 years, he's been a state lawmaker and state Insurance Commissioner. He's run twice for governor and lost. Despite a cloud of criminal allegations, Gallagher easily won the state Education Commissioner's job last year. Today he heads a public school system of more than 2-million children.

But as Gallagher prepares for his next big campaign, a run for U.S. Senate, new details have emerged from a closed criminal investigation that could provide fodder for his opponents to sling:

+ Newly released federal court records portray Gallagher as secretive, uncooperative and unwilling to address possible wrongdoing at National Assessment Institute, a Clearwater testing company he was running in 1995.

The company's president told investigators that Gallagher repeatedly lectured him not to investigate problems or "reduce things to writing." Gallagher stresses that no charges ever came out of criminal investigations of the company.

+ The state Department of Business and Professional Regulation is trying to recover $155,673 from the testing company, saying it overbilled the state under Gallagher's watch.

State records show that even Gallagher's staff questioned whether the billing method he authorized was proper. Gallagher says he doesn't owe any money to the state and that lawyers in the state attorney general's office have declined to pursue the matter in court.

+ James Bax, Gallagher's business partner in the controversial testing company, is seeking business from the Department of Education that Gallagher heads.

A political fundraiser for Gallagher in the past, Bax is now an adjunct professor at Florida State University. He said he spoke to Gallagher on behalf of FSU, which is interested in assisting Florida's experimental "charter" schools _ public schools that operate without a lot of government interference. "I'm not in this thing for financial gain," Bax said.

Gallagher said a lot of people come to see him about getting business from the Department of Education. "I don't make promises to anyone." Gallagher referred Bax to his deputies, who say they are not planning to transfer or expand a charter school assistance center _ now at the University of South Florida _ to FSU.

Bax was the majority stockholder in National Assessment Institute in Clearwater when problems began mounting in 1995.

The company had been administering tests for a variety of occupations that require state licenses. Gallagher came on board in early 1995 after losing the Republican primary for governor, arranging a five-year option to buy the company from Bax and oversee daily operations.

Things soured quickly. Gallagher resigned shortly after federal and state agents raided the company in November 1995, searching for evidence of crimes.

The Florida Department of Law Enforcement, the FBI, the Internal Revenue Service and the U.S. Attorney's Office were investigating allegations that could lead to a variety of charges, from mail fraud to bribery and extortion, the newly released federal records show.

Among the allegations was that the company may have knowingly overbilled the state; that it may have used test questions on Florida exams in other states _ a breach of security that could lead to cheating as well as fraud and other federal crimes; that the company may have given illegal campaign contributions to public officials to get contracts; and that it may have failed to turn over records to a grand jury.

In the end, no charges were filed. Federal prosecutors have never given a public explanation. The Florida Department of Law Enforcement confirmed last week that the agency has officially closed its investigation."In terms of being able to pursue and prosecute charges we weren't at that point," said agency spokeswoman Liz Hirst.

That is good news _ and bad _ as Gallagher prepares for a U.S. Senate race.

A closed case means some records of the investigation can now be made public _ creating potentially damaging material for campaign ads against Gallagher.

Gallagher has been so low-key about his Senate race that some friends have wondered whether he's really running. He acknowledges that the timing isn't good for any criminal investigation records to be released.

"I don't like it at all," he said, "but what are you going to do?"

An 11-page affidavit unsealed in federal court in Tampa last month casts Gallagher in a particularly unflattering light. The Nov. 13, 1995, affidavit was used to obtain a warrant to search the testing company in Clearwater.

Lee Schroeder, then-president of National Assessment Institute, told the Florida Department of Law Enforcement that Gallagher on several occasions told him not to investigate or create written records of problems, according to the affidavit.

In one case, Schroeder said he came to Gallagher with evidence that test questions on Florida exams were being used in Utah _ which could lead to possible mail fraud or other federal charges.

Gallagher became angry, Schroeder said, telling him "that if he continued investigating this "s---' he would continue to find "embarrassing' things." Gallagher stopped the investigation into the matter, Schroeder told the FDLE.

In another case, Schroeder said, he saw financial documents indicating that the testing company may have violated campaign contribution laws. Gallagher told him not to give the information to a state inspector at the company at the time and to ask the inspector to leave, Schroeder told the FDLE.

Gallagher said in an interview last week that he had invited the inspector in to assure the state that the company was appropriately handling testing contracts. But he never intended for the inspector to look through company checks. After getting attorneys' advice about the matter, Gallagher said he asked that the inspector stop reviewing the financial records.

As to Schroeder's other allegations, Gallagher said he was trying to help a troubled company move forward rather than focus on events of the past.

Schroeder continually tried to undermine his efforts, Gallagher said, bringing forward allegations about things that occurred three or four years earlier. "Why do we investigate stuff that may or may not have happened in the past?" Gallagher said.

In addition, Gallagher said, Schroeder "totally resented me being there."

Schroeder was National Assessment Institute president between mid-June 1993 and early 1996. He is not identified by name in the affidavit, but acknowledges that he supplied the information. Now the head of his own testing company based in Pinellas County, Schroeder said last week that he still stands by what he told the Florida Department of Law Enforcement.

In another case, Schroeder said he was lectured about putting things in writing when he gave Gallagher a memo about a questionable change in the way the company was billing the state. Gallagher had authorized the change _ which led to an increase in revenues of $155,673 for the company.

Now, the Department of Business and Professional Regulation wants the money back.

Gallagher authorized the billing change after coming to Tallahassee in the summer of 1995 to discuss a testing contract with Mary Alice Palmer. She was the chief of the testing bureau at the Department of Business and Professional Regulation.

But the two met at Gallagher's home rather than the office to discuss the contract. Gallagher said he didn't feel welcome at DBPR after a new secretary took over.

"As far as I know, Mr. Gallagher used his home as his office. I had no problem meeting him there," said Palmer, who now works at the Department of Insurance.

After the meeting, Gallagher returned to Clearwater and told his staff he had found a problem with the billing method; that he had discussed it with Palmer and she was willing to support a change. The revised method would ultimately increase the company's revenues by $155,673.

Schroeder and other company officials didn't agree, according to testimony in a DBPR internal investigation of the matter. In fact, one executive, Matt Wenger, told internal investigators that he thought Gallagher and Palmer "crossed the line ethically."

Both Gallagher and Palmer insist that the billing was proper. But the situation remains unresolved. The state attorney general's office last month declined to file a lawsuit.

Records show that attorneys were trying to determine the proper party to sue, and exactly what position Gallagher had at the company at the time of the alleged overbilling. Attorneys at one point drafted copies of a lawsuit against Gallagher and the company for breach of contract and other allegations. But in the end they decided there was no "legal basis" to move forward.

"It is noted that a federal grand jury in 1996 had the opportunity to examine this matter and chose to take no action," Deputy Attorney General Richard Doran wrote to DBPR's general counsel last month. Neither Doran nor another state attorney involved in the matter would return a reporter's phone call.

DBPR still believes it is owed $155,673, and agency attorneys continue to review the case in hopes of reaching a settlement.

Gallagher said the incident is just another example of Schroeder's attempts to undermine him.

When he returned to Clearwater, he recalls that "no one said a word" when he explained that there should be a change in billing. Two weeks or so later, he got a memo from Schroeder expressing caution and concern about "any appearance of impropriety."

"I was livid," Gallagher recalled. "I said, "What the hell is this supposed to be?' "

Schroeder said that's not how it happened _ that he immediately expressed concern when Gallagher told him about the new billing method.

"Now he's trying to recreate history," Schroeder said.

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