Chapter 8 Homework – Vice President Spiro Agnew and Construction Kickbacks in Maryland
Due: November 8, 2020, at 11:59 p.m. US Central Time
Directions: Please submit your assignment as a PDF on Blackboard. You can use this word document as a
template for answering the homework questions. Use concepts and definitions discussed in the text to
answer the questions.
Vice President Spiro Agnew and Construction Kickbacks in Maryland
In January of 1973, architects and consulting engineers all over Baltimore, Maryland, were seeking out
any available defense attorneys with experience in criminal law. This activity was brought on by
subpoenas issued by the U.S. Attorney for Maryland, George Beall, who was looking into charges of
bribes and kickbacks given to elected officials by engineers working in the construction industry. The
subpoenas required these engineers to submit the records of their firms to the U.S. attorney. One of
these engineers was Lester Matz, a partner in Matz, Childs and Associates, a Baltimore engineering firm.
The subsequent events described by Richard Cohen and Jules Witcover in their book A Heartbeat Away
eventually led to the disgrace and resignation of Spiro Agnew, then the Vice President of the United
States.
Matz was an engineer trained at Johns Hopkins University in Baltimore. Although his firm was
doing well, it always seemed to lose out to other firms on big public-works contracts. In Maryland,
engineering and architectural services for government projects were not put out for bid, but rather were
awarded to individual firms using various criteria, including the firm’s ability to do the work, its
performance on past contracts, etc. Interestingly, unlike the situation for engineering services, the
contractor for government projects was chosen through a competitive bidding process. It became clear
to Matz that in acquiring government contracts, his talents and those of his firm were unimportant.
What was required to get the contracts for public works was contacts in government and the requisite
bribes and kickbacks.
In 1961, Matz began courting Spiro T. Agnew, an ambitious and rising politician. In 1962, Matz
donated $500 to Agnew’s campaign for Baltimore county executive, a post that is roughly equivalent to
mayor for the areas of the county outside the city limits of Baltimore. The county executive wielded
great power in determining who received contracts for the engineering services required for the
numerous public-works projects undertaken by the county. The campaign contribution was given by
Matz and his partner in the hopes of receiving some of the county engineering contracts that they had
been locked out of. After Agnew won the election, the contribution made by Matz’s engineering firm
was rewarded with contracts for county engineering work. In return, the firm paid Agnew 5% of their
fees from the county work, which apparently was the kickback paid by other engineering firms at the
time.
With this arrangement, Matz, Childs and Associates prospered and Matz became relatively
wealthy. At its peak, the firm employed nearly 350 people. Matz was able to rent an apartment in Aspen
for his winter ski vacations and also had a beach condo at St. Croix in the Virgin Islands. Matz’s St. Croix
condo was near a condo owned by his friend, Spiro Agnew. The “business” arrangement between
Agnew and Matz continued when Agnew was elected governor of Maryland, only now Matz, Childs and
Associates received contracts for state work. The financial arrangement remained the same: Agnew
received a payment for every contract awarded.
These payments continued even after Agnew was elected vice president on the Republican
ticket with Richard Nixon in 1968. Matz testified that he met with Agnew in his office in the White House
and had given him an envelope containing $10,000 in cash. Indeed, Matz also indicated that he had
given $2,500 dollars to Agnew for a federal contract that a subsidiary of Matz, Childs and Associates had
received. All told, Matz described payments that he had given Agnew over the years totaling over
$100,000.
As a brief aside, it is interesting to describe how the money paid to Agnew was generated.
Clearly, these payments had to be made in cash in order to avoid leaving records of the transactions.
However, engineering firms are not paid in cash for their services and thus don’t typically have large
amounts of cash on hand. One method of generating cash was to give cash “bonuses” to key employees.
After retaining a sufficient amount to pay the income taxes on the bonus, the employee returned the
cash to the firm, where it was placed in a safe until needed. Of course, this practice is a violation of the
tax code: The company books record the transaction as a bonus, yet much of the money is retained by
the fi rm. This practice subjected Matz, Childs and Associates to prosecution under the federal tax code.
This method didn’t always generate the required amount of cash, so other means were also used. For
example, large “loans” were made to colleagues, who cashed the money and returned it to the firm.
These loans were then “repaid” slowly over a long period of time to make the books appear right.
With federal prosecutors threatening to indict Matz and Childs for income-tax evasion and other
charges, they decided to provide evidence to the government of the wrongdoing of Agnew and his
successor as county executive. Agnew’s lawyers and the prosecutors reached an agreement whereby
Agnew would resign as vice president and plead nolo contendere (no contest) to a single count of
income-tax evasion, a felony, for payments received in 1967. This plea is the legal equivalent of a plea of
guilty; the defendant doesn’t admit to the crime, but does acknowledge that there is enough evidence
to convict him. On October 10, 1973, Agnew resigned as vice president, the first vice president to have
resigned in disgrace. Later that day, in a dramatic appearance in a Maryland courtroom, he entered his
plea. The judge fined him $10,000 and honored the plea agreement whereby Agnew received no jail
term, but only three years of unsupervised probation. For agreeing to cooperate with the prosecution,
Matz and Childs were not prosecuted.
These events took place against the backdrop of one of the most intense government crises in
U.S. history. Although Nixon and Agnew had been reelected in a landslide in the 1972 election, the
Watergate scandal hung over the administration. Shortly after the events of this case, the Watergate
scandal intensified, culminating in the resignation of Richard Nixon from the presidency.
Questions:
1. (5 pts) Does the fact that paying government officials for receiving contracts seemed to be a
common-place business practice in Maryland at the time make this practice ethically acceptable?
2. (5 pts) What should an engineer do in the face of competition from others who are willing to resort
to bribery?
3. (5 pts) What is the ethical status of a campaign contribution given to a politician to secure future
business? Is this a bribe? Is this extortion? Perhaps line drawing (Chapter 2) would help answer this
question.
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