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HomeMy WebLinkAbout1809 MelnickPHONL 717-783-1610 TOLL FREE: 1­800­932­0936 In Re: Nick Melnick, Respondent S'rKI'E UHWS COMMISSION FINANCE BUILDING 613 NORTH SI-REET, ROOM 3019 [IARRISBURG, FV\ 17120 0400 File Docket: X-ref: Date Decided: Date Mailed: FAC,131MILE: 717-787-0806 WEBSI'TE:)6Lv�g._(,t�icq,p,,i.ggy 21-018 Order No. 1809 6/28/22 7/8/22 Before: Mark R. Corrigan, Acting Chair Roger Nick Melanie DePalma Michael A. Schwartz Shelley Y. Simms Rhonda Hill Wilson Paul Parsells This is a final adjudication of the State Ethics Commission. Procedurally, the Investigative Division of the State Ethics Commission conducted an investigation regarding possible violation(s) of the Public Official and Employee Ethics Act ("Ethics Act"), 6 5 Pa. C, S. § 1101 et seq., by the above -named Respondent. At the commencement of its investigation, the Investigative Division served upon Respondent written notice of the specific allegation. Upon completion of its investigation, the Investigative Division issued and served upon Respondent a Findings Report identified as an "Investigative Complaint." A Stipulation of Findings and a Consent Agreement were subsequently submitted by the parties to the Commission for consideration. The Stipulated Findings are set forth as the Findings in this Order. The Consent Agreement has been approved. 1. ALLEGATION: That Nick Melnick, a public official/public employee in his capacity as the Chief Information Officer for the Pennsylvania Liquor Control Board, violated Section 1103(a) of the Ethics Act when he used the authority of his public position and/or confidential information obtained through his public position for the private pecuniary benefit of himself and/or a member of his immediate family, when he obtained information not obtainable from reviewing a public document or making inquiry to a publicly available source of information as a result of his public position, and used that information to purchase, at a price significantly below market value, alcohol that was limited in quantity and not available to the public when said purchase was made. 11. FINDINGS: Melnick, 21-018 Page 2 1. Nick Melnick ("Melnick") was employed with the Commonwealth of Pennsylvania from September 26, 1988, until his retirement on September 5, 2020. a. Melnick began employment with the Commonwealth as a Descriptive Statistician II for the Pennsylvania Department of Environmental Protection. Melnick transferred to work for the Administrative Office of the Courts on September 20, 1993, as an Information Technology (IT) Planning Manager. 2. Melnick was later appointed as IT Planning and Policy Manager for the Executive Offices, Office of Deputy CIO on January 29, 2007. 3. Melnick was reassigned to work as the IT Planning Manager for the General Government Operations, Community of Practice Deputy Chief Information Officer on June 15, 2007. b. Melnick served as the Chief Information Officer ("CIO") for the Pennsylvania Liquor Control Board ("PLCB") from February 14, 2015, until his retirement on September 5, 2020. 2. Melnick's duties as the CIO for the PLCB included the following: a. Planned, organized, and directed the information technology planning, policy development, applications services, data services, infrastructure, and customer service for an agency characterized by the largest, most diverse and complex information technology resources to support operating and business environments; b. Developed, recommended, implemented, evaluated, and updated short and long- term information technology strategic planning efforts consistent with the agency's mission and overall Office of Information Technology ("OIT") enterprise goals and objectives; Served as the chief information technology advisor to the agency executive staff by developing and recommending policies consistent with enterprise information technology policies and business needs; d. Evaluated the information technology needs of agency organizational unity and external clients and identified technological developments; Managed a portfolio of diverse and complex agency information technology projects and initiatives which required multi -agency integration and coordination; Developed and recommended policies and procedures for agency specific information technology needs; g. Directed the design, operation, configuration and support of the agency's local area Melnick, 21-018 Page 3 networks, wide area network, and metropolitan area network in conjunction with Governor's Office of Administration ("OA")/OlT enterprise standards and contracts; h. Coordinated and directed the acquisition of technical hardware, software and supplies to enhance the performance of the agency's information technology program in conjunction with OA/01T enterprise standards and contracts; i. Developed the annual information technology budget request including proposed hardware and software acquisitions and estimated costs and recommended use; and j. Performed full range of supervisory duties. 3. On April 12, 1951, the Pennsylvania General Assembly combined existing beer and liquor laws into one statute, the "Liquor Code," codified at 47 P.S. §§ 1-101 — 10-1001. 4. The PLCB is authorized by statute to promulgate regulations not inconsistent with the Liquor Code. The PLCB exercised this authority and has promulgated regulations found at 40 Pa. Code § § 1.I-17.41. 5. Effective August 8, 2016, Act 39 of 2016 changed many of the PLCB's responsibilities, including regulatory, licensing, product procurement and marketing activities. 6. Melnick was considered a "public employee" as that term is defined in Ethics Act. See also, 47 P.S. § 2-206.1(a). 7. The PLCB is governed by a three -Member Board appointed by the Governor and confirmed by two-thirds of the Pennsylvania Senate. 8. The PLCB oversees the PLCB Executive Director, and the PLCB Executive Director oversees all PLCB employees and executives except for the Chief Counsel, the Board Secretary, and employees/executives of the Legislative Affairs office. a. At all tunes relevant hereto, Melnick directly reported to then-PLCB Executive Director Charles Mooney ("Mooney"). 9. The mission of the PLCB is to responsibly sell wine and spirits as a retailer and wholesaler, regulate Pennsylvania's alcohol industry, promote alcohol education and social responsibility, and maximize financial returns for the benefit of all Pennsylvanians. 10. The PLCB regulates the manufacture, importation, sale, distribution and disposition of liquor, alcohol, and malt or brewed beverages in the Commonwealth. 11. As a control state, the PLCB is the only retail seller of spirits in the Commonwealth. Melnick, 21-018 Page 4 a. The PLCB may grant licenses to entities/establishments for the sale of alcoholic beverages for on -site consumption as well as to vendors who sell products for off - site consumption. b. In order for an alcoholic beverage to be sold in Pennsylvania, it must be authorized for sale by the PLCB. THE FOLLOWING FINDINGS PERTAIN TO THE PLCB'S ALLOCATED LOTTERY. 12. The PLCB is statutorily -mandated by the Pennsylvania Legislature to ensure the equitable distribution of alcoholic beverages to licensed businesses and consumers within the Commonwealth. 13. As part of this statutory mandate, the PLCB conducts allocated spirit lotteries, also known as Limited -Release Lotteries. a. The PLCB has been conducting Limited -Release Lotteries since October 2015. 14. The purpose of the Limited -Release Lotteries is to fairly and equitably distribute the ability to purchase high -end, limited quantity wine and spirits to both individuals and licensees within the Commonwealth. a. The PLCB sells Limited -Release Lottery items to Commonwealth citizens only through the Limited -Release Lottery process. 15. All PLCB customers, both individuals and licensees, may enter Limited -Release Lotteries for an opportunity to purchase limited quantity products including highly sought-after bourbons such as the Pappy Van Winkle Collection and the Buffalo Trace Antique Collection. 16. In order to enter the Limited -Release Lotteries, Commonwealth citizens must register on the PLCB's finewineandgoodspirits.com website ("FW&GS website") and agree to and accept the terms and conditions. a. Limited -Release Lottery items are highly sought after because of limited allocation and availability for purchase in the Commonwealth only through the Limited - Release Lottery process or from a licensed seller (such as a restaurant or bar). 17. The PLCB posts the Limited -Release Lottery terms and conditions on the FW&GS website. a. The PLCB Limited -Release Lottery Terms and Conditions for Participation by Individual Customers ("Limited -Release Lottery Terms and Conditions") were last updated on October 31, 2019. b. The Limited -Release Lottery Terms and Conditions provide for the following: Melnick, 21-018 Page 5 1. To enter the PLCB Limited -Release Lottery, an individual customer or licensee must enter on the FW&GS website and have an FW&GS account; 2. Limited -Release Lottery winners are selected randomly through a computer algorithm; 3. Limited -Release Lottery winners must be Pennsylvania residents and be twenty-one years of age to enter; and 4. Limited -Release Lottery winners are permitted to purchase no more than one Limited -Release Lottery item per individual or household. 18. The PLCB does not prohibit PLCB employees or officials from entering Limited -Release Lotteries or from purchasing items if they are selected as a Limited -Release Lottery winner. a. The Limited Release Lottery Terms and Conditions do not exempt PLCB officials and employees from the Limited Release Lottery Terms and Conditions. 19. Prior to each Limited -Release Lottery, the PLCB issues press releases that detail the entry period, rules to enter, items available, the cost for each item, and the total quantity made available to both individual customers and licensees. 20. A Limited -Release Lottery winner is contacted by email and given the opportunity to purchase the Limited -Release Lottery item through the FW&GS website. 21. The Limited -Release Lottery item is shipped to the winner's address or designated FW&GS store from the PLCB Fulfillment Center (East Greenville Business Center, 668 Gravel Pike, Suite 500, East Greenville, PA 18041) after receipt of payment. 22. The quantity of items that remain in inventory following a Limited -Release Lottery is not released to the public through press releases or any other method of communication. 23. The Limited -Release Lottery Terms and Conditions under "Second Drawings and General Sale" reflect that remaining items are to be made available during a second drawing, made available on the E-Commerce website, or otherwise sold by the PLCB in the manner it deems most appropriate. a. "If a winning entrant's order is unable to be processed because of payment issues, or if the entry of a winning entrant is determined to no longer be eligible for any other reason, the time associated with that order or entry may be subject to a second drawing, to the extent that any other eligible entries remain in the applicable individual consumer drawing pool for that product code. If a second drawing is not conducted, then any remaining items of any product code will be released for general sale on the FW&GS website on a first -come, first -served basis, or will otherwise be sold by the PLCB in the manner it deems most appropriate based on Melnick, 21-018 Page 6 operational needs. The one -bottle -per -individual consumer and one bottle -per - household or billing -address restrictions will continue to apply to the general sale or any other sales offers. Entrants selected as winners during a Lottery will not be eligible to purchase products through the general sale or any other sales offers." 24. The total number of Limited -Release Lotteries varies from year to year. a. The PLCB conducts one Pappy Van Winkle Collection Limited -Release Lottery and one Buffalo Trace Antique Collection Limited -Release Lottery each year. b. Other highly sought-after bourbons such as Weller 12 Year Reserve Bourbon are made available through additional Limited -Release Lotteries. 25. Unbeknownst to Melnick, prior to July 2019, Dale Horst ("Horst"), the PLCB Director of Marketing and Merchandising, recommended to the PLCB and PLCB executives to forgo a second Limited -Release Lottery drawing. a. Horst made the recommendation based on operational needs and to save money. Horst informed the PLCB and PLCB executives that due to the cost and time to conduct a second drawing for a few items, it made the most business sense to discontinue it. 2. Instead of a second drawing, the remaining Limited -Release Lottery items were to be made available on a first -come, first -served basis on the FW&GS website. b. The PLCB agreed to forgo a second drawing based on Horst's recommendation. No official vote was taken by the PLCB to discontinue a second drawing. d. The Limited -Release Lottery Terms and Conditions were never amended by the PLCB to include the decision to discontinue a second drawing. The Limited -Release Lottery Terms and Conditions under "Second Drawings and General Sale" state: "If a winning entrant's order is unable to be processed because of payment issues, or if the entry of a winning entrant is determined to no longer be eligible for any other reason, the time associated with that order or entry may be subject to a second drawing, to the extent that any other eligible entries remain in the applicable individual consumer drawing pool for that product code. If a second drawing is not conducted, then any remaining items of any product code will be released for general sale on the FW&GS website on a first -come, first -served basis, or will otherwise be sold by the PLCB in the manner it deems most appropriate based on operational needs. The one -bottle -per -individual consumer and one -bottle -per -household or billing -address restrictions will Melnick, 21-018 Page 7 continue to apply to the general sale or any other sale offers. Entrants selected as winners during a Lottery will not be eligible to purchase products through the general sale or any other sales offers." 26. Unbeknownst to Melnick, the first Limited -Release Lottery where a second drawing was not conducted by the PLCB was the July 10, 2019, Limited -Release Lottery. a. This was the first Limited -Release Lottery where allocated Limited -Release Lottery items were made available for PLCB employees and officials to purchase outside of the Limited -Release Lottery process. b. Multiple PLCB employees and officials, including Melnick, made purchases which bypassed the Limited -Release Lottery process. 27. Melnick never entered a Limited -Release Lottery while employed with the PLCB. Melnick stated during a July 7, 2021, interview with Commission Investigators that he did not think it was right to enter a Limited -Release Lottery while he was employed there. THE FOLLOWING FINDINGS PERTAIN TO THE ALLEGATION THAT MELNICK USED HIS PUBLIC POSITION AND/OR CONFIDENTIAL INFORMATION TO PURCHASE A LIMITED -RELEASE LOTTERY ITEM OUTSIDE OF THE LIMITED - RELEASE LOTTERY PROCESS. 28. Melnick, as the PLCB CIO, supervised the team responsible for maintaining the hardware and software used to maintain the FW&GS website. a. Melnick was not responsible for listing Limited -Release Lottery items or determining the quantity of items that were allocated for a Limited -Release Lottery. 29. During his employment as the PLCB CIO, Melnick regularly attended PLCB Executive Team meetings until January 17, 2020. 30. Melnick submitted his intent to retire from the PLCB to Mooney on January 21, 2020, and he received his exit letter on January 23, 2020. Melnick remained involved in special projects as directed by Mooney, but day-to-day management of OIT matters was transferred to Dennis Mayer, Assistant CIO, who also attended Executive Team meetings after January 17, 2020. 31. Soon after January 23, 2020, Melnick's office was relocated to the PLCB Legislative Affairs office located on the first floor of the Northwest Office Building. 32. On or around February 14, 2020, Melnick asked Horst whether Eagle Rare bourbon remained. Melnick notified Horst that he would be interested in a bottle for purchase. Horst informed Melnick that the PLCB had a bottle of Eagle Rare 17 Year Bourbon available if Melnick, 21-018 Page 8 he was interested in purchasing it. a. The Eagle Rare 17 Year Bourbon was a listed item for the December 4, 2019, Limited -Release Lottery. b. The information that Horst provided to Melnick was not available to the general public. 33. Prior to the December 4, 2019, Limited -Release Lottery, the PLCB maintained a small quantity of Limited -Release Lottery items for instances of breakage and mis-shipment. a. The purpose of holding over items following a Limited -Release Lottery was to ensure that Limited -Release Lottery sales could be fulfilled even if bottles were to break during shipping. b. Horst was responsible for determining the number of holdover items that would remain following each Limited -Release Lottery. C. Melnick was aware of the PLCB's policy to maintain a quantity of holdover items post Limited -Release Lottery. 34. Melnick advised Horst that he was interested in the Eagle Rare 17 Year Bourbon. 35. The Eagle Rare 17 Year Bourbon is part of the limited quantity and highly sought-after Buffalo Trace Antique Collection that also includes George T. Stagg Bourbon, Thomas Handy Sazerac Rye, Sazerac Rye 18 Year, and William Larue Weller Bourbon. a. The Buffalo Trace Antique Collection, including Eagle Rare 17 Year Bourbon, is highly sought after and only made available for purchase through the Limited - Release Lottery. b. Melnick asserts that at the time he purchased the Eagle Rare 17 Year Bourbon from. Horst, he was unaware that the Eagle Rare 17 Year Bourbon was part of the limited quantity Buffalo Trace Antique Collection. 36. The PLCB allocated a total of 93 bottles of Eagle Rare 17 Year Bourbon for individual customers for the December 4, 2019, Limited -Release Lottery. 37. The PLCB allocated a total of 30 bottles of Eagle Rare 17 Year Bourbon for licensees to purchase through the December 4, 2019, Limited -Release Lottery. 38. Approximately 10,678 eligible PLCB individual customers entered the December 4, 2019, Limited -Release Lottery for an opportunity to purchase one bottle of Eagle Rare 17 Year Bourbon. a. Of the 10,678 individual customers that entered, only 93 winners were selected. Melnick, 21-018 Page 9 39. Approximately 129 eligible licensees entered the December 4, 2019, Limited -Release Lottery for an opportunity to purchase one bottle of Eagle Rare 17 Year Bourbon. a. Of the 129 licensees that entered, only 30 winners were selected. 40. On February 25, 2020, the Eagle Rare 17 Year Bourbon was dropped off on Melnick's desk. Melnick then brought it to the second floor Cost Center register to purchase it. a. Melnick used his personal Visa credit card to complete the purchase. b. Melnick purchased the Eagle Rare 17 Year Bourbon for $109.99 plus tax. C. Melnick paid the same amount for the Eagle Rare 17 Year Bourbon as a Limited - Release Lottery winner paid to purchase the item, a price set by the PLCB. THE FOLLOWING FINDINGS RELATE TO INVESTIGATIONS COMPLETED BY THE COMMONWEALTH OFFICE OF THE BUDGET BUREAU OF AUDITS AND THE PLCB. 41. The Commonwealth Office of the Budget Bureau of Audits ("BOA") acts as an independent observer for all Limited -Release Lotteries. a. The BOA observes the Limited -Release Lotteries at the request of the PLCB. b. BOA Auditor III Pamela Richards ("Richards") is responsible for observing each Limited -Release Lottery to ensure it is conducted in a fair and equitable manner. C. The BOA provides the PLCB with a report of observations following each Limited - Release Lottery and identifies irregularities. 42. Melnick is not and was not an employee of the BOA and was not involved in the BOA's review and reconciliation of the inventory of Limited -Release Lottery items as described in the following paragraphs. 43. Richards is responsible for reviewing and reconciling the inventory of Limited -Release Lottery items post -lottery to ensure the items were correctly distributed. 44. After completing a review of the January 29, 2020, Pappy Van Winkle Limited -Release Lottery, Richards found that inventory counts were not matching the transfer of items designated for the Limited -Release Lottery. 45. Richards discovered that eight units of Pappy Van Winkle bourbon were transferred from the PLCB Fulfillment Center (East Greenville Business Center, 668 Gravel Pike, Suite 500, East Greenville, PA 18041) to the Northwest Office Building second floor Cost Center (2298) on February 21, 2020. Melnick, 21-018 Page 10 a. The transfers were made after the Limited -Release Lottery occurred on January 29, 2020. 46. Richards initiated a review of prior years' Limited -Release Lotteries and found that another twelve Limited -Release Lottery items, including Weller 12 Year Reserve Bourbon, Buffalo Trace 9 Year Bourbon, Eagle Rare 17 Year Bourbon, and George T. Stagg Bourbon, were transferred from the PLCB Fulfillment Center to the Northwest Office Building Cost Center. a. The transfers were made between July 2019 and February 2020. 47. Richards identified the following transfers of Limited -Release Lottery items from the PLCB Fulfillment Center to the Northwest Office Building from July 2019 until February 2020: a. Following the July 10, 2019, Limited -Release Lottery, six bottles of Weller 12 Year Reserve Bourbon, one bottle of Buffalo Trace Experimental Collection 11-48 Month Whiskey, and one bottle of Buffalo Trace Experimental Collection 11-36 Month Whiskey were transferred from the PLCB Fulfillment Center (Store 4650) to the Northwest Office Building (Store 2298). b. Following the December 4, 2019, Limited -Release Lottery, two bottles of George T. Stagg Bourbon and two bottles of Eagle Rare 17 Year Bourbon were transferred from the PLCB Fulfillment Center (Store 4650) to the Northwest Office Building (Store 2298). C. Following the January 29, 2020, Pappy Van Winkle Limited -Release Lottery, one bottle of Pappy Van Winkle Special Reserve 12 Year Bourbon, five bottles of Pappy Van Winkle's Family Reserve 15 Year Bourbon, and two bottles of Pappy Van Winkle's Family Reserve 20 Year Bourbon were transferred from the PLCB Fulfillment Center (Store 4650) to the Northwest Office Building (Store 2298). 48. Richards identified a total of twenty Limited -Release Lottery items that were transferred from the PLCB Fulfillment Center to the Northwest Office Building. a. Of the twenty items that were transferred, eighteen were sold at the Northwest Office Building second floor Cost Center register. 1. The PLCB is headquartered at the Northwest Office Building. 2. The second floor Cost Center register is primarily used to process gift cards, specials orders, and celebrity bottle signing purchases for PLCB employees. The second floor Cost Center register is not open to the public to purchase wine and spirits. Melnicic, 21-018 Page 11 4. The second floor Cost Center is set up as an office with cubicles and is not an actual FW&GS store. 49. PLCB Director of Retail Operations Carl Jolly was the only PLCB employee who Richards identified as purchasing Limited -Release Lottery items because he provided a driver's license when he completed a return of Pappy Van Winkle bourbon on February 26, 2020. a. The PLCB requires a driver's license to complete a return. 50. On May 1, 2020, and May 11, 2020, BOA Assistant Director Michael Blinn ("Blinn") contacted Horst to discuss irregularities identified by Richards. a. Blinn contacted Horst due to the possible negative public perception the issue could create. b. Specifically, Blinn contacted Horst regarding Limited -Release Lottery items purchased by PLCB employees in violation of the Limited -Release Lottery Terms and Conditions. C. Horst informed Blinn that he would notify his superior, Mooney, of the irregularities noted by Richards. 51. On May 22, 2020, William Canfield ("Canfield"), Director of the BOA, memorialized his agency's PLCB Allocated Lottery Observations regarding the Limited -Release Lottery conducted on January 29, 2020, in a Memorandum to Horst. a. The report states that the drawing itself was fairly conducted. b. The executive summary in the report included "An additional item outside the scope of this engagement was discussed with PLCB management." C. The following was noted in the Conclusion of the Memorandum: 1. "The reconciliation between information received from Marketing and the transactional data at the E-Commerce center revealed two (2) unexplained physical inventory differences which could be indicative of not tracking the units accurately." 2. "An additional item outside the scope of this engagement was discussed with PLCB management." d. The "additional item" mentioned in the BOA Memorandum pertained to the irregularities found by Richards and follow-up discussions with Horst. 52. Horst failed to follow up with the BOA after conversations with Blinn regarding Melnicic, 21-018 Page 12 irregularities identified by Richards. a. Horst failed to inform Mooney or the Members of the PLCB about the irregularities found by Richards. 53. The BOA became concerned that Horst and the PLCB were unresponsive to the report of the Limited -Release Lottery observations. a. The BOA was concerned that no control measures were implemented to prevent future sales of Limited -Release Lottery items to PLCB employees and officials. 54. PLCB Chairman Timothy Holden ("Holden") was contacted on June 28, 2020, by Pennsylvania Secretary of Administration Michael Newsome ("Newsome"). a. Newsome contacted Holden to inquire if the PLCB had changed policies regarding the sale of Limited -Release Lottery items outside of the Limited -Release Lottery. 1. Newsome served as a Member of the PLCB from April 2016 until January 2019, 2. Newsome was not aware of any changes made regarding permitting the sale of Limited -Release Lottery items to PLCB employees and officials outside of the Limited -Release Lottery. b. Newsome learned about the sale of Limited -Release Lottery items to PLCB employees during a June 2020 Audit Committee meeting. The Audit Committee is an advisory committee of cabinet -level officials that helps to establish the direction of the BOA's efforts. BOA Director Canfield addressed concerns before the Audit Committee pertaining to the lack of response from the PLCB and the sale of Limited -Release Lottery items to PLCB employees at the Northwest Office Building. d. Newsome informed Holden that he was aware that a BOA audit had uncovered irregular transactions pertaining to the sale of Limited -Release Lottery items at the Northwest Office Building. 55, After Holden was informed that PLCB executives had purchased Limited -Release Lottery items, he instructed PLCB Assistant Counsel Jason Worley, PLCB Chief Counsel Rodrigo Diaz, and PLCB Executive Director Michael Demko to complete an internal investigation into the matter. 56. The internal investigation identified five PLCB employees who were able to purchase Limited -Release Lottery items only by virtue of their public employment. Melnick, 21-018 Page 13 a. These employees were: Carl Jolly, PLCB. Director of Retail Operations; 2. Tom Bowman, PLCB Director of Product Selection; 3. Bryan Kelleher, PLCB Director of Business Development for Wholesale Operations; 4. Cliff McFarland, PLCB Director of Supply Chain; and 5. Melnick. b. These PLCB employees used personal credit cards to purchase the Limited -Release Lottery items at the Northwest Office Building second floor Cost Center register. III. DISCUSSION: As the Chief Information Officer for the Pennsylvania Liquor Control Board ("PLCB") from February 14, 2015, until September 5, 2020, Respondent Nick Melnick ("Melnick") was a public employee subject to the provisions of the Public Official and Employee Ethics Act ("Ethics Act"), 65 Pa.C.S. § 1101 et 5eMc . The allegation is that Melnick violated Section 1103(a) of the Ethics Act when he used the authority of his public position and/or confidential information obtained through his public position for the private pecuniary benefit of himself and/or a member of his immediate family, when he obtained information not obtainable from reviewing a public document or making inquiry to a publicly available source of information as a result of his public position, and used that information to purchase, at a price significantly below market value, alcohol that was limited in quality and not available to the public when said purchase was made. Pursuant to Section 1103(a) of the Ethics Act, a public official/public employee is prohibited from engaging in conduct that constitutes a conflict of interest: § 1103. Restricted activities (a) Conflict of interest. ---No public official or public employee shall engage in conduct that constitutes a conflict of interest. 65 Pa.C.S. § 1103(a). The term "conflict of interest" is defined in the Ethics Act as follows: § 1102. Definitions Melnick, 21-018 Page 14 "Conflict" or "conflict of interest." Use by a public official or public employee of the authority of his office or employment or any confidential information received through his holding public office or employment for the private pecuniary benefit of himself, a member of his immediate family or a business with which he or a member of his immediate family is associated. The term does not include an action having a de minimis economic impact or which affects to the same degree a class consisting of the general public or a subclass consisting of an industry, occupation or other group which includes the public official or public employee, a member of his immediate family or a business with which he or a member of his immediate family is associated. 65 Pa.C.S. § 1102. Subject to the statutory exclusions to the Ethics Act's definition of the term "conflict" or "conflict of interest," 65 Pa.C.S. § 1102, pursuant to Section 1103(a) of the Ethics Act, a public official/public employee is prohibited from using the authority of public office/employment or confidential information received by holding such a public position for the private pecuniary benefit of the public official/public employee himself, any member of his immediate family, or a business with which he or a member of his immediate family is associated. As noted above, the parties have submitted a Consent Agreement and Stipulation of Findings. The parties' Stipulated Findings are set forth above as the Findings of this Commission. We shall now summarize the relevant facts as contained therein. Melnick served as the Chief Information Officer ("CIO") for the PLCB from February 14, 2015, until September 5, 2020, when he retired from his Commonwealth employment. At all times relevant to the instant matter, Melnick reported to Charles Mooney ("Mooney"), who was the PLCB Executive Director. The PLCB regulates the manufacture, importation, sale, distribution and disposition of liquor, alcohol, and malt or brewed beverages in the Commonwealth. The PLCB is the only retail seller of spirits in the Commonwealth. The PLCB is statutorily -mandated by the Pennsylvania Legislature to ensure the equitable distribution of alcoholic beverages to consumers and licensed businesses within the Commonwealth. As part of this statutory mandate, the PLCB conducts Limited -Release Lotteries. The purpose of the Limited -Release Lotteries is to fairly and equitably distribute the ability to purchase high -end, limited quantity wines and spirits to both individual customers and licensees within the Commonwealth. Bottles of wines and spirits offered for sale through the Limited - Release Lottery process are highly sought after because they have limited allocation and may only be purchased through the Limited -Release Lottery process. The PLCB has been conducting Limited -Release Lotteries since October 2015. The total number of Limited -Release Lotteries conducted each year varies from year to year. Melnick, 21-018 Page 15 All PLCB customers, including individual customers and licensees, may enter Limited - Release Lotteries for an opportunity to purchase limited quantity products, including highly sought-after bourbons such as the Pappy Van Winkle Collection and the Buffalo Trace Antique Collection. The PLCB has typically conducted one Pappy Van Winkle Collection Limited -Release Lottery and one Buffalo Trace Antique Collection Limited -Release Lottery each year and has made other highly sought-after bourbons available through additional Limited -Release Lotteries. Prior to each Limited -Release Lottery, the PLCB issues press releases that detail the entry period, rules to enter, items available, the cost for each item, and the quantities available for purchase by individual customers and licensees. In order to enter a Limited -Release Lottery, a Commonwealth citizen must register on the PLCB's finewineandgoodspirits.com website ("FW&GS website") and agree to and accept the PLCB Limited -Release Lottery Terms and Conditions for Participation by Individual Customers ("Limited -Release Lottery Terms and Conditions") that are posted on the FW&GS website. The Limited -Release Lottery Terms and Conditions provide, in pertinent part, that. (1) a Limited -Release Lottery must be entered into through the FW&GS website; (2) Limited -Release Lottery winners are selected randomly through a computer algorithm; (3) Limited -Release Lottery winners must be Pennsylvania residents and be twenty-one years of age to enter; and (4) Limited -Release Lottery winners are permitted to purchase no more than one Limited -Release Lottery item per individual customer or household. The PLCB does not prohibit PLCB employees or officials from entering Limited -Release Lotteries or purchasing an item if selected as a Limited -Release Lottery winner. PLCB officials and employees are not exempt from the Limited -Release Lottery Terms and Conditions. A Limited -Release Lottery winner is contacted by email and given the opportunity to purchase the Limited -Release Lottery item through the FW&GS website. The Limited -Release Lottery item is shipped to the winner's address or a designated FW&GS store from the PLCB Fulfillment Center after payment is received for the item. The quantity of items that remain in inventory following a Limited -Release Lottery is not released to the public through press releases or any other method of communication. The Limited - Release Lottery Terms and Conditions, under "Second Drawings and General Sale," reflect that remaining items may be made available through a second drawing to the extent that any eligible entries remain in the applicable drawing pool. The Limited -Release Lottery Terms and Conditions further provide that if a second drawing is not conducted, any remaining items will be released for general sale on the FW&GS website on a first -come, first -served basis or will otherwise be sold by the PLCB in the manner it deems most appropriate based on operational needs. Prior to July 2019, Dale Horst ("Horst"), the PLCB Director of Marketing and Merchandising, recommended to the Members of the PLCB and PLCB executives to forgo holding a second drawing for a Limited -Release Lottery. Horst informed the Members of the PLCB and PLCB executives that due to the cost and time required to conduct a second drawing for a few items, it made the most business sense to discontinue holding a second drawing. Based upon Horst's recommendation, the PLCB Members agreed to forgo holding a second drawing. Instead of conducting a second drawing, remaining Limited -Release Lottery items were to be made Melnick, 21-018 Page 16 available on a first -come, first -served basis on the FW&GS website or otherwise sold by the PLCB in the manner it deemed most appropriate based on operational needs. The PLCB did not amend the Limited -Release Lottery Terms and Conditions to reflect the decision to discontinue holding a second drawing. The July 10, 2019, Limited -Release Lottery was the first Limited -Release Lottery where a second drawing was not conducted by the PLCB. Eagle Rare 17 Year Bourbon is part of the limited quantity and highly sought-after Buffalo Trace Antique Collection. For the December 4, 2019, Limited -Release Lottery, the PLCB allocated a total of 123 bottles of Eagle Rare 17 Year Bourbon for individual customers and licensees to purchase through the Limited -Release Lottery at the cost of $109.99. It was the PLCB's policy to maintain a small quantity of bottles of an item, such as Eagle Rare 17 Year Bourbon, that was the subject of a Limited -Release Lottery in order to ensure that sales could still be fulfilled even if bottles were mis-shipped or broken during shipping. On or around February 14, 2020, Melnick asked the PLCB Director of Marketing and Merchandising whether there were any bottles of Eagle Rare Bourbon that could be purchased. After Horst informed Melnick that the PLCB had a bottle of Eagle Rare 17 Year Bourbon available for purchase, Melnick expressed his interest in purchasing the bottle. The information that Horst provided to Melnick was not available to the general public. On February 25, 2020, the bottle of Eagle Rare 17 Year Bourbon was dropped off at Melnick's desk in the PLCB's headquarters at the Northwest Office Building in Harrisburg, Pennsylvania. Melnick then used his personal Visa credit card to purchase the bottle of Eagle Rare 17 Year Bourbon at the second floor Cost Center register in the Northwest Office Building. Melnick paid the PLCB the same amount that a winner of the Limited -Release Lottery paid to purchase a bottle of Eagle Rare 17 Year Bourbon (i.e., $109.99). At the request of the PLCB, the Commonwealth Office of the Budget Bureau of Audits ("BOA") acts as an independent observer for all Limited -Release Lotteries. Pamela Richards ("Richards"), who is employed as an Auditor III for the BOA, is responsible for observing each Limited -Release Lottery to ensure that it is conducted in a fair and equitable manner. Richards is also responsible for reviewing and reconciling the inventory of Limited -Release Lottery items post -lottery to ensure that the items were correctly distributed. After completing a review of the January 29, 2020, Pappy Van Winkle Collection Limited - Release Lottery, Richards found that inventory counts were not matching the transfer of items designated for that Limited -Release Lottery. Richards discovered that eight units of Pappy Van Winkle bourbon were transferred from the PLCB Fulfillment Center to the Northwest Office Building on February 21, 2020. Richards initiated a review of prior Limited -Release Lotteries, and she found that between July 2019 and February 2020, another twelve Limited -Release Lottery items, including bottles of Weller 12 Year Reserve Bourbon, Buffalo Trace 9 Year Bourbon, Eagle Rare 17 Year Bourbon, and George T. Stagg Bourbon, were transferred from the PLCB Fulfillment Center to the Northwest Office Building. Eighteen of the twenty items that were transferred to the Northwest Office Building were sold at the second floor Cost Center register. On May 1, 2020, and May 11, 2020, BOA Assistant Director Michael Blinn ("Blinn") contacted Horst to discuss the irregularities identified by Richards. Horst informed Blinn that he Melnick, 21-018 Page 17 would notify his superior, Mooney, of the irregularities noted by Richards. Horst failed to follow up with the BOA after the conversations with Blinn, and he failed to inform Mooney or the Members of the PLCB about the irregularities found by Richards. Pennsylvania Secretary of Administration Michael Newsome ("Newsome") served as a Member of the PLCB from April 2016 until January 2019. During a June 2020 meeting of the Audit Committee, an advisory committee of cabinet -level officials that helps to establish the direction of the BOA's efforts, Newsome learned about the BOA's concerns regarding the sale of Limited -Release Lottery items to PLCB employees at the Northwest Office Building and the PLCB's lack of response to the BOA's concerns. On June 28, 2020, Newsome contacted PLCB Chairman Timothy Holden ("Holden") to inquire whether the PLCB had changed policies regarding the sale of Limited -Release Lottery items outside of the Limited -Release Lottery process. Newsome informed Holden that he was aware that a BOA audit had uncovered irregular transactions pertaining to the sale of Limited - Release Lottery items at the Northwest Office Building. After Holden was informed that PLCB executives had purchased Limited -Release Lottery items, he instructed PLCB Assistant Counsel Jason Worley, PLCB Chief Counsel Rodrigo Diaz, and PLCB Executive Director Michael Demko to complete an internal investigation into the matter. The internal investigation identified the following five PLCB employees who were able to purchase Limited -Release Lottery items only by virtue of their public employment: (1) Melnick; (2) Carl Jolly, PLCB Director of Retail Operations; (3) Bryan Kelleher, PLCB Director of Business Development for Wholesale Operations; (4) Cliff McFarland, PLCB Director of Supply Chain; and (5) Tom Bowman, PLCB Director of Product Selection. These PLCB employees used personal credit cards to purchase the Limited -Release Lottery items at the Northwest Office Building second floor Cost Center register. Having highlighted the Stipulated Findings and issues before us, we shall now apply the Ethics Act to determine the proper disposition of this case. The parties' Consent Agreement sets forth a proposed resolution of the allegations as follows: 3. The Investigative Division will recommend the following in relation to the above allegations: a. That no violation of Section 1103(a) of the Public Official and Employee Ethics Act, 65 Pa.C.S. § 1103(a), occurred when Melnick used the authority of his public position to obtain information not available to the general public, and used that information to purchase alcohol that was limited in quantity and unavailable for purchase by the general public, due to insufficient clear and convincing evidence of a pecuniary benefit. Melnick, 21-018 Page 18 4. As there is insufficient evidence to support a violation, there is no penalty. 5. Melnick agrees to not purchase any items offered by the Pennsylvania Liquor Control Board (PLCB) outside of the process by which a Commonwealth resident may purchase. 6. The Investigative Division will recommend that the State Ethics Commission take no further action in this matter; and make no specific recommendations to any law enforcement or other authority to take action in this matter. Such, however, does not prohibit the Commission from initiating appropriate enforcement actions in the event of Respondent's failure to comply with this agreement or the Commission's order or cooperating with any other authority who may so choose to review this matter further. a. The Respondent has been advised that as a matter of course, all orders from the Commission are provided to the Attorney General, albeit without any specific recommendations pursuant to paragraph 6 above. b. The Respondent has been advised that all orders become public records and may be acted upon by law enforcement as they deem appropriate. C. The non -referral language contained in this paragraph is considered an essential part of the negotiated consent agreement Consent Agreement, at 1-2. In considering the Consent Agreement, we accept the recommendation of the parties for a finding of no violation as to the Section 1103(a) allegation. On or around February 14, 2020, Melnick asked the PLCB Director of Marketing and Merchandising whether there were any bottles of Eagle Rare Bourbon that could be purchased. Melnick was informed by the PLCB Director of Marketing and Merchandising that the PLCB had a bottle of Eagle Rare 17 Year Bourbon available for purchase. Melnick received this information, which was not available to the general public, solely as a result of his employment as the Chief Information Officer for the PLCB. Although it is clear that Melnick was able to purchase the bottle of Eagle Rare 17 Year Bourbon that remained from the Limited -Release Lottery only because of his receipt of information not available to the general public, the Stipulated Findings reflect that he paid the same price that a Limited -Release Lottery winner would have paid to purchase the bottle (i.e., $109.99). Because the only way to legally purchase bottles of Eagle Rare Melnick, 21-018 Page 19 17 Year Bourbon in the Commonwealth is through Limited -Release Lotteries', Melnick essentially paid the "market value" of a bottle of Eagle Rare 17 Year Bourbon in the Commonwealth. There is no basis in the Stipulated Findings for concluding that Melnick realized a private pecuniary benefit as a result of his purchase of the bottle of Eagle Rare 17 Year Bourbon left over from the Limited -Release Lottery process. Accordingly, based upon the parties' Stipulation of Findings and Consent Agreement, we hold that no violation of Section 1103(a) of the Ethics Act, 65 Pa.C.S. § 1103(a), occurred when Melnick used the authority of his public position to obtain information not available to the general public, and used that information to purchase alcohol that was limited in quantity and unavailable for purchase by the general public, due to insufficient clear and convincing evidence of a pecuniary benefit. As part of the Consent Agreement, Melnick has agreed to not purchase any items offered by the PLCB outside of the process by which a Commonwealth resident may purchase such items. We determine that the Consent Agreement submitted by the parties sets forth a proper disposition for this case, based upon our review as reflected in the above analysis and the totality of the facts and circumstances. Accordingly, per the Consent Agreement of the parties, Melnick is ordered to fulfill his agreement to not purchase any items offered by the PLCB outside of the process by which a Commonwealth resident may purchase such items. Compliance with the foregoing will result in the closing of this case with no further action by this Commission. Noncompliance will result in the institution of an order enforcement action. �l'��K�];CK�[il�YCf7►�YiJ=�.1►:\'.'E As the Chief Information Officer for the Pennsylvania Liquor Control Board from February 14, 2015, until September 5, 2020, Respondent Nick Melnick ("Melnick") was a public employee subject to the provisions of the Public Official and Employee Ethics Act ("Ethics Act"), 65 Pa.C.S. § 1101 et seq. 2. No violation of Section 1103(a) of the Ethics Act, 65 Pa.C.S. § 1103(a), occurred when Melnick used the authority of his public position to obtain information not available to the general public, and used that information to purchase alcohol that was limited in quantity and unavailable for purchase by the general public, due to insufficient clear and convincing evidence of a pecuniary benefit. ' Out-of-state distilleries and retailers cannot legally ship liquor directly to individual customers in the Commonwealth see, 47 P.S. §§ 4-415, 4-488, 4-49I(2), 5-505.2, 5-505.4). It would also generally be illegal to purchase a bottle of Eagle Rare 17 Year Bourbon in another state for consumption in the Commonwealth because with certain limited exceptions, it is illegal to bring any liquor purchased in another state into the Commonwealth see, 47 P.S. §§ 4- 491(8), (11)). z Although, based on purchase prices in other states and on the internet, the bottle of Eagle Rare 17 Year Bourbon may have been valued at significantly more than the price charged by the PLCB to purchase the bottle, the bottle would not have had any resale value because it is illegal to sell alcohol without a license. In Re: Nick Melnick, Respondent File Docket: 21-018 Date Decided: 6/28/22 Date Mailed: 7/8/22 39A 13 D1 t\/ i i L 1. No violation of Section 1103(a) of the Public Official and Employee Ethics Act, 65 Pa.C.S. § 1103(a), occurred when Nick Melnick ("Melnick"), as the Chief Information Officer for the Pennsylvania Liquor Control Board, used the authority of his public position to obtain information not available to the general public, and used that information to purchase alcohol that was limited in quantity and unavailable for purchase by the general public, due to insufficient clear and convincing evidence of a pecuniary benefit. 2. Melnick is ordered to fulfill his agreement to not purchase any items offered by the Pennsylvania Liquor Control Board outside of the process by which a Commonwealth resident may purchase such items. 3. Compliance with paragraph 2 of this Order will result in the closing of this case with no further action by this Commission. a. Non-compliance will result in the institution of an order enforcement action. BY THE COMMISSION, Acting Chair