When Regina Dugan left her family business to head up Pentagon bleeding-edge research agency Darpa, she signed a form pledging to have nothing to do with her former firm, the military contractor RedXDefense. That formally recused Dugan from any business with the company. But the document, provided by the agency, shows that she kept her stock in RedXDefense, even as it won a $400,000 Darpa contract.

Agency officials insist that Dugan abided by the terms of her recusal and had nothing to do with RedXDefense’s deal. But even if Dugan maintained a firewall between her government job and her old firm, open government groups say, her continued ownership of $15,000 or more in RedXDefense stock creates the potential for the appearance of a conflict of interest.

“She should have divested herself completely of stock in the company she founded, if only to avoid the appearance of impropriety,” says Nick Schwellenbach of the Project on Government Oversight. “Recusals are nice, but she should put her money where her mouth is: away from her old company.”

After Dugan left Darpa in 2000, she co-founded RedXDefense, a firm specializing in explosives detection, and led the firm until her 2009 appointment to lead the research agency. (Her father is now the company CEO, and her uncle sits on the RedXDefense advisory board.)

The day she officially re-joined Darpa as director — July 20, 2009 — Dugan signed a recusal form and sent it to the Pentagon’s director of research and engineering. Under the heading “Notice of Disqualification — Stock Ownership over the $15K” (sic), the form specifies that “effective immediately, I am disqualified from participating personally and substantially” from “any particular matter” that would impact RedXDefense’s bottom line.

It goes on to specify that Dugan will revise the recusal if “I sell my stock in RedXDefense, and the two (2) years from my date of appointment has expired,” or if she’s “no longer involved in any matter” that would have “a direct and predictable effect on the financial interest of RedXDefense.”

Six months later, on January 28, 2010, RedXDefense received a Darpa contract worth $400,000.

POGO’s Schwellenbach notes that other Pentagon officials have sold their stock in defense contractors once they joined the government. Gordon England, the one-time deputy defense secretary, divested himself of holdings in his former company, defense contractor General Dynamics — a move that cost England more than $1 million.

Danger Room has filed a Freedom of Information Act request for Dugan’s financial disclosure form, to learn precisely what stake in RedXDefense she maintains. According to her recusal form, Dugan deputized Robert Lehney, then Darpa’s deputy director, to screen “particular matters” coming into her office to ensure RedXDefense is uninvolved.

Darpa told Danger Room that Dugan didn’t have any involvement in RedXDefense’s 2010 contract with the agency, and that the agency’s top lawyer made sure the contract was aboveboard.

“At no time did Dr. Dugan participate in any dealings between the Agency and RedXDefense related to the contract,” agency spokesman Eric Mazzacone says.

It certainly wasn’t RedXDefense’s first contract with Darpa. According to a federal contracting database, before Dugan returned to Darpa to run the agency — she was a program manager from 1996 to 2000 — Darpa gave RedXDefense a similar research contract on February 24, 2009 worth $410,000, lasting through August 23. That followed a November 13, 2007 research contract worth $349,788, lasting through December 19, 2008.

RedXDefense has also received contracts from the Departments of the Army, Air Force and Navy for its signature explosives detection services between 2007 and 2010.

But those contracts were for substantially less money than its Darpa holdings. The highest award by far came from the Army in 2008 and was worth $163,000. Most of its other non-Darpa contract awards are worth in the low to middle five digits figure totals, like this Navy explosives detection contract from 2008, worth less than $21,000.

Dugan’s recusal form is here:

Dugan Disq. Memo

Photo: Annette Polan, www.capitalartports.com, used with permission