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HomeMy WebLinkAbout1808 McFarlandPHONE 717­783­1610 701.1. FREE 1-8(l0-932-0936 In Re: Cliff McFarland, Respondent STATE ETHICS COMMISSION FINANC,E BUILDING 613 NORTH STREET, ROOM 309 HARRISBURG, I'A 17120-0400 File Docket: X-ref- Date Decided: Date Mailed: FACSIMILE 717..787-0806 WEBSITE: V JLhjq,.pa.cW , _W_q.,2 I _ v 21-,017 Order No. 1808 6/28/22 6/29/22 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"), 65 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. That Cliff McFarland, a public official/public employee in his capacity as the Director of Supply Chain 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. McFarland, 21-017 Page 2 11. FINDINGS: 1. Clifford ("Cliff') McFarland ("McFarland") has been employed by the Pennsylvania Liquor Control Board ("PLCB") since April 20, 2015. a. McFarland's first position was with the PLCB's Bureau of Supply Chain. b. McFarland was promoted to PLCB Director of Planning and Procurement on October 30, 2016. C. McFarland was subsequently promoted to PLCB Director of Supply Chain on March 30, 2018. 2. McFarland has the following duties as the PLCB Director of Supply Chain: a. Strategic planning, policy development, and management of supply chain functions of the PLCB; b. Principal advisor to the Chief Operating Officer regarding the supply chain; C. Planning and directing the entire operation and management activities of the PLCB supply chain through development, evaluation, and revision of supply chain policies involving distribution center, E-commerce and Licensee Service Center operations, and transportation; d. Works closely with PLCB Marketing, Store Operations, and Wholesale Operations groups to improve operational efficiencies; e. Researches and reviews programs and legislation to develop executive policy recommendations that enables the PLCB to be a retail industry leader; f. Evaluates and implements PLCB compliance with homeland security requirements and collaborates with channel partners such as intermediaries and third -party service providers; and g. Prepares budget estimates and monitors budget expenditures and coordinates financial auditing activities internally as well as with the ComptroIler's Office, the Pennsylvania Department of Treasury, and the Pennsylvania Auditor General's Office. 3. As the PLCB Director of Supply Chain, McFarland is a "public employee" as that term is defined by the Ethics Act. 4. The PLCB is governed by a three -Member Board, appointed by the Governor and confirmed by two-thirds of the Pennsylvania Senate. McFarland, 21-017 Page 3 a. The PLCB appoints a Chief Executive Officer. 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. 6. The PLCB regulates the manufacture, importation, sale, distribution and disposition of liquor, alcohol, and malt or brewed beverages in the Commonwealth. 7. As a control state, the PLCB is a retail seller of wine/spirits in the Commonwealth. 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. An alcoholic beverage to be sold in Pennsylvania must first be authorized for sale by the PLCB. THE FOLLOWING FINDINGS PERTAIN TO THE PLCB'S LIMITED -RELEASE LOTTERY OF WINES AND SPIRITS. 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. 9. 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. 10. 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. 11. 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. 12. 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). McFarland, 21-017 Page 4 13. 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: 1. To enter the PLCB Limited -Release Lottery, an individual customer 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 customer or household. 14. 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. 15. 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. 16. 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. 17. 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. 18. 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. 19. The Limited -Release Lottery Terms and Conditions, "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. McFarland, 21-017 Page S 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 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." 20. The total number of Limited -Release Lotteries varies from year to year. a. 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. b. The PLCB has no formal policy or lists as to what qualifies as an item to be sold via a Limited -Release Lottery. 21. 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 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 or otherwise sold by the PLCB in the manner it deemed most appropriate based on operational needs. b. The PLCB agreed to forgo a second lottery drawing based on Horst's recommendation. C. No official vote was taken by the PLCB to discontinue a second lottery drawing. d. The Limited -Release Lottery Terms and Conditions were never amended by the PLCB to include the decision to discontinue a second drawing. McFarland, 21-017 Page 6 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 -battle -per -individual consumer and one -bottle -per -household or billing -address restrictions will 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." 22. 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 McFarland, made purchases outside of the Limited -Release Lottery process. THE FOLLOWING FINDINGS RELATE TO MCFARLAND'S PARTICIPATION IN LIMITED -RELEASE LOTTERY DRAWINGS 23. McFarland has entered multiple Limited -Release Lotteries since he began employment with the PLCB in 2016. 24. The chart below details Limited -Release Lotteries that McFarland entered from calendar year 2016 through January 2020. Date/Month Products Notes Aug- 16 BT Ex ., EH Taylor, Four Roses, Willet Nov-16 Eagle Rare 17 yr, George T. Stagg, Th Handy, W.L. Dec-16 -Pappy Van Winkle Coll. Mar-17 Parker's Heritage, Four Roses Single Barrel Select Oct-17 W.L., Eagle Rare 17 yr, George T. Stagg, Thom Handy, SazR e, Antiq Set Nov-17 Pappy Van Winkle Coll, Feb-18 Four Roses Sm Batch, Parkers Heritage, Elmer T Lee Jul-18 O han Barrel Entrapment, EH Ta tor, Willett, Weller 12 yr McFarland, 21-017 Page 7 Oct-18 Eagle Rare 17 yr, Sazerac, Th Handy, George T Stagg, W.L, Antique Set Nov-18 Pap X Van Winkle Coll. Jan-19 Weller 12 Year, Weller Craft, Parker's Heritage, Four Roses 130th Anniv. Jul-19 Weller 12 Year, BT Ex Coll. Nov-19 BT Coll, George T Stagg, WL, ThHandy, Eagle Rare 17 yr, Sazerac R e *Won 1 bottle George T. Stagg Jan-20 Pappy Van Winkle Coll. a. McFarland entered every Limited -Release Lottery from 2016 through January 2020. b. McFarland won one bottle of George T. Stagg Bourbon following the December 4, 2019, Limited -Release Lottery. 25. McFarland entered each Limited -Release Lottery for the opportunity to purchase Eagle Rare 17 Year Bourbon but did not win. 26. The PLCB allocated a total of 93 bottles of Eagle Rare 17 Year Bourbon for individual customers and 30 bottles of Eagle Rare 17 Year Bourbon for licensees for the December 4, 2019, Limited -Release Lottery. 27, Approximately 10,678 eligible PLCB individual customers, including McFarland, 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 who entered, only 93 winners were selected. 28. 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. 29. Following the December 4, 2019, Limited -Release Lottery, and after the orders of all Limited -Release Lottery winners were fulfilled or left uncompleted, a small number of bottles of Eagle Rare 17 Year Bourbon remained in inventory. 30. Following the December 4, 2019, Limited -Release Lottery, at recurring staff meetings, Horst openly talked about bottles that remained after all Limited -Release Lottery winners had confirmed receipt of their bottles, informing those at the meetings that they should let him know if they wanted one of the remaining bottles. 31. On December 11, 2019, Horst mailed McFarland regarding items that would be available to purchase from the PLCB "third Wednesday release." McFarland, 21-017 Page 8 a. Horst wrote, "Here are the items that will be in the E-Commerce's Wednesday release on Dec. 18"'. If you have any interest in any of these items, let me know." b. The PLCB makes a certain quantity of limited quantity products available for purchase on the PLCB E-Commerce website to customers on a first -come, first - served basis. 1. Items made available include limited quantity bourbons. C. Items available on the "third Wednesday release" are not Limited -Release Lottery items. 32. The information provided by Horst to McFarland was not available to the general public or any PLCB licensee. 33. On December 11, 2019, McFarland replied to Horst and inquired if any of the Buffalo Trace Antique Collection bourbons were available. a. McFarland wrote; "Dale if available I'll buy: 2 bottles of the EH Taylor (30724) 2 bottles of the Four Roses (80703) 1 bottle Weller (3985) And any one of the antiques collections if they are left thanks, Cliff' b. McFarland's reference to "Antiques Collection" referenced the Buffalo Trace Antique Collection bourbons that include George T. Stagg Bourbon, Eagle Rare 17 Year Bourbon, Thomas Handy Sazerac Rye, Sazerac Rye 18 Year, and William Larue Weller Bourbon. C. The Buffalo Trace Antique Collection is highly sought after and only made available for purchase through Limited -Release Lotteries. 1. McFarland was aware of the Buffalo Trace Antique Collection as he entered every Limited -Release Lottery for an opportunity to purchase Buffalo Trace Antique Collection bourbons. 34. On December 12, 2019, Horst replied to McFarland and informed him that he had all of the items available for purchase from. the Buffalo Trace Antique Collection. a. Horst was aware that McFarland had won a bottle of George T. Stagg Bourbon after entering the December 4, 2019, Limited -Release Lottery. McFarland, 21-017 Page 9 b. Horst wrote, "On the Antique collection, I see you got a Stagg. Do you have a preference on any of the others; Eagle Rare, William LaRue, Thomas Handy, or Sazerac Rye. I should have all of them." 35. McFarland replied to Horst on December 12, 2019, to inform him that he wanted to purchase the Eagle Rare 17 Year Bourbon. a. McFarland wrote, "Eagle Rare please." b. The Eagle Rare 17 Year Bourbon was a listed item for the December 4, 2019, Limited -Release Lottery and is part of the highly sought-after Buffalo Trace Antique Collection. C. McFarland failed to win a bottle of Eagle Rare 17 Year Bourbon during the December 4, 2019, Limited -Release Lottery. 36. After failing to win a bottle of Eagle Rare 17 Year Bourbon through the Limited -Release Lottery, McFarland, in his capacity as a public employee, used the confidential information he obtained due to his position to request that Horst transfer a bottle to the Northwest Office Building. a. In this instance PLCB individual customers or licensees were not afforded the opportunity to purchase a Limited -Release Lottery item if they failed to win the Limited -Release Lottery as they were not informed by Horst as to what items were available to be purchased McFarland had no knowledge of the extent to which Horst shared information about the availability of the items and of whether or not Horst shared such information with PLCB individual customers or licensees. b. A PLCB individual customer or licensee can only wait until the next available Buffalo Trace Antique Collection Limited -Release Lottery or for the PLCB to release the items for general sale for an opportunity to purchase an item. 37. On December 17, 2019, four days after Horst transferred the bottle of Eagle Rare 17 Year Bourbon, McFarland purchased the bottle of Eagle Rare 17 Year Bourbon at the Northwest Office Building second floor Cost Center register. a. McFarland used his personal Mastercard credit card to make the purchase. b. McFarland purchased the Eagle Rare 17 Year Bourbon for $109.99. C. McFarland paid the same amount for the Eagle Rare 17 Year Bourbon as a Limited - Release Lottery winner paid to purchase the item. THE FOLLOWING FINDINGS RELATE TO INVESTIGATIONS COMPLETED BY THE COMMONWEALTH OFFICE OF THE BUDGET BUREAU OF AUDITS AND THE PLCB. McFarland, 21-017 Page 10 38. 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 111 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. 39. Richards is responsible for reviewing and reconciling the inventory of Limited -Release Lottery items post -lottery to ensure the items were correctly distributed. 40. 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. 41. 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. a. The transfers were made after the Limited -Release Lottery occurred on January 29, 2020. 42. 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. 43. 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 McFarland, 21-017 Page 11 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). 44. 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. 3. The second floor Cost Center register is not open to the public to purchase wine and spirits. 4. The second floor Cost Center is set up as an office with cubicles and is not an actual FW&GS store. 45. 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. 46. 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, then -Executive Director Charles Mooney ("Mooney"), of the irregularities noted by Richards. McFarland, 21-017 Page 12 47. 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. 48. Horst failed to follow up with the BOA after conversations with Blinn regarding irregularities identified by Richards. a. Horst failed to inform Mooney or the Members of the PLCB about the irregularities found by Richards. 49. 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. 50. 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. McFarland, 21-017 Page 13 b. Newsome learned about the sale of Limited -Release Lottery items to PLCB employees during a June 2020 Audit Committee meeting. 1. The Audit Committee is an advisory committee of cabinet -level officials that helps to establish the direction of the BOA's efforts. C. 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. 51. 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. 52. The internal investigation identified five PLCB employees who were able to purchase Limited -Release Lottery items only by virtue of their public employment. a. These employees were: 1. 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. McFarland; and 5. Nick Melnick, PLCB Chief Information Officer. 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 Director of Supply Chain for the Pennsylvania Liquor Control Board ("PLCB") from March 30, 201 S, to the present, Respondent Cliff McFarland ("McFarland") has been a public employee subject to the provisions of the Public Official and Employee Ethics Act ("Ethics Act"), 65 Pa. C.S. § 1101 et sue. McFarland, 21-017 Page 14 The allegation is that McFarland 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 "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. McFarland, 21-017 Page 15 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. McFarland has been employed with the PLCB since April 20, 2015. McFarland was promoted to the position of Director of Supply Chain on March 30, 2018. The PLCB regulates the manufacture, importation, sale, distribution and disposition of liquor, alcohol, and malt or brewed beverages 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. 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. McFarland, 21-017 Page 16 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 PLCB Members and PLCB executives to forgo holding a second drawing for a Limited -Release Lottery. Horst informed the PLCB Members 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 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. From August 16, 2019, through July 19, 2019, McFarland entered every Limited -Release Lottery for an opportunity to purchase a bottle of Eagle Rare 17 Year Bourbon, but he did not win any of those Limited -Release Lotteries. For the December 4, 2019, Limited -Release Lottery, the PLCB allocated 93 bottles of Eagle Rare 17 Year Bourbon for individual customers to purchase through the Limited -Release Lottery. Approximately 10,678 individual customers, including McFarland, entered the Limited -Release Lottery for an opportunity to purchase a bottle of Eagle Rare 17 Year Bourbon at the cost of $109.99. McFarland did not win the Limited -Release Lottery. A small number of bottles of Eagle Rare 17 Year Bourbon remained in inventory after the Limited - Release Lottery. Following the December 4, 2019, Limited -Release Lottery, Horst talked openly at staff meetings about bottles that remained after the Limited -Release Lottery, and he informed those in attendance that they should let him know if they wanted one of the remaining bottles. On December 11, 2019, Horst emailed McFarland to see if he had any interest in purchasing certain limited quantity products, which were not Limited -Release Lottery items, that would be made available for purchase on the PLCB's E-Commerce website on December 18, 2019. McFarland replied to Horst by email and inquired whether any bourbons in the Buffalo Trace Antique Collection, which includes Eagle Rare 17 Year Bourbon, were left over from the Limited -Release McFarland, 21-017 Page 17 Lottery. When Horst informed McFarland via email that various items, including Eagle Rare 17 Year Bourbon, were available, McFarland requested Eagle Rare 17 Year Bourbon. On or about December 15, 2019, Horst transferred a bottle of Eagle Rare 17 Year Bourbon to the PLCB's headquarters at the Northwest Office Building in Harrisburg, Pennsylvania. On December 19, 2019, McFarland used his personal Mastercard credit card to purchase the bottle of Eagle Rare 17 Year Bourbon at the second floor Cost Center register in the Northwest Office Building. McFarland 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., $10999). 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 would notify his superior, then-PLCB Executive Director Charles Mooney ("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- McFarland, 21-017 Page 18 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) McFarland; (2) Carl Jolly, PLCB Director of Retail Operations; (3) Bryan Kelleher, PLCB Director of Business Development for Wholesale Operations; (4) Tom Bowman, PLCB Director of Product Selection; and (5) Nick Melnick, PLCB Chief Information Officer. 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 McFarland 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. 4. As there is insufficient evidence to support a violation, there is no penalty. 5. McFarland 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. McFarland, 21-017 Page 19 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. Following the December 4, 2019, Limited -Release Lottery, at McFarland's request, the PLCB Director of Marketing and Merchandising informed McFarland that Eagle Rare 17 Year Bourbon was left over from the Limited -Release Lottery and available to be purchased. McFarland received this information, which was not shared with the general public, solely as a result of his employment as the Director of Supply Chain for the PLCB. Although it is clear that McFarland was able to purchase a bottle of Eagle Rare 17 Year Bourbon left over 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 17 Year Bourbon in the Commonwealth is through Limited -Release Lotteries', McFarland 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 McFarland 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.2 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 McFarland 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, 4-491(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. McFarland, 21-017 Page 20 As part of the Consent Agreement, McFarland 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, McFarland 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. IV. CONCLUSIONS OF LAW: As the Director of Supply Chain for the Pennsylvania Liquor Control Board from March 30, 2018, to the present, Respondent Cliff McFarland ("McFarland") has been 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 McFarland 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. In Re: Cliff McFarland, Respondent File Docket: 21-017 Date Decided: 6/28/22 Date Mailed: 6/29/22 I . No violation of Section 1103(a) of the Public Official and Employee Ethics Act, 65 Pa.C.S. § 1103(a), occurred when Cliff McFarland ("McFarland"), as the Director of Supply Chain 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. McFarland 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, lir