GOP Senate candidate sued over payment scheme

By Jonathan Stempel

Mike McGavick, a Republican candidate for the U.S. Senate from Washington state, was sued on Tuesday for allegedly accepting up to $28 million of improper payments from Safeco Corp. after he resigned as chief executive, a shareholder said on Tuesday.

The shareholder, Emma Schwartzman, a great-great-granddaughter of one of Safeco’s founders, said her lawsuit was filed with the U.S. District Court in Seattle. She is also suing Safeco directors and the Seattle-based insurer.

McGavick, a 48-year-old Republican, is running for the Senate seat held by Maria Cantwell, a Democrat.

According to the complaint, McGavick resigned from Safeco at the end of 2005, but was allowed to work a few days in January and February 2006 to collect payments, including bonuses and stock option packages, that he had forfeited by resigning.

"McGavick thus looted Safeco on his way out the door," the complaint said. "The board acquiesced to this malfeasance."

The complaint said that McGavick has on campaign disclosure forms reported 2006 income of $15 million to $28 million.

In a statement, McGavick said the allegations over his pay were "without merit," and blamed Cantwell’s allies for what he called a "politically motivated character attack."

A representative for Cantwell in Seattle did not immediately return a call seeking comment.

Safeco spokesman Paul Hollie declined to comment, saying he had not seem the complaint.

At the insurer’s shareholder meeting in May, non-executive chairman Jay Brown said two outside consultants reviewed McGavick’s compensation, and Safeco concluded it was getting "very good value in return for what we were paying."

Schwartzman wants the money returned and a constructive trust until an accounting can be made.

In a statement, Knoll Lowney, a lawyer representing Schwartzman, accused McGavick of using some of the money to fund his Senate campaign. He said, though, that the lawsuit was "about corporate corruption, not partisan politics."

Among the directors named in the complaint were Gary Locke, a former Washington governor, and Kerry Killinger, chief executive of Seattle-based Washington Mutual Inc., the largest U.S. thrift.

Andrew Krueger, a spokesman for Lowney’s law firm, said Schwartzman is a 27-year-old student at the University of Washington and a descendant of C.D. Stimson, a founder of the General Insurance Co. of America, which evolved into Safeco.

Safeco expects to release second-quarter results on Wednesday. Its shares fell 56 cents to close at $53.16 on the Nasdaq on Tuesday.

© 2006 Reuters