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Interior Department Inspector General Earl Devaney’s release of three reports, which stem from a $5 million investigation dating to 2005, implicated at least 19 current and former employees of the Minerals Management Service in unethical relationships with industry, frolics that included marijuana and cocaine use.

The reports raised new concerns about the management of programs that collect $8 billion in annual revenue from offshore and onshore mineral leases. Democrats seized on the report to bolster their efforts to counter growing pressure to open up more areas to oil drilling.

“The allegations of illicit and unethical behavior detailed in the inspector general’s report are directly related to the energy debate taking place in the Congress this week,” House Speaker Nancy Pelosi of California said. “Little did we know how cozy the relationship between Big Oil and the administration’s regulators have been.”

Brandishing a copy of the inspector general’s report, Sen. Bill Nelson, D-Fla., said Wednesday “It’s bad enough that the government employees who oversee offshore oil drilling are literally and figuratively in bed with Big Oil, the rest of the U.S. government doesn’t need to jump in bed with them.”

Devaney said that his investigators had “discovered a culture of substance abuse and promiscuity” in the recently created “Royalty in Kind” program, in which the government forgoes royalties and takes a share of the pumped oil and gas for resale. Several of the program’s staffers, based in Washington and Denver, “admitted to illegal drug use as well as illicit sexual encounters.”

From 2002 to 2006, nearly a third of the RIK staff “socialized with, and received a wide array of gifts and gratuities from, oil and gas companies with whom (the program) was conducting official business,” Devaney said in a memo to Interior Secretary Dirk Kempthorne. While the dollar amounts of the gifts were “not enormous,” he wrote, the gifts came with “prodigious frequency,” with two RIK marketers accepting gifts and gratuities on at least 135 occasions.

The investigators found that 19 RIK employees had accepted gifts from prohibited sources in the oil and gas industry, and that most had taken gifts exceeding the agency thresholds of $20 in value per gift or $50 in value per year.

About half the employees have retired and are beyond the reach of disciplinary action, but Devaney said that the misconduct was so serious it might warrant the removal of some of nine current employees cited in the report.

Danielle Brian, the executive director of the Project on Government Oversight, a nonpartisan watchdog group, said that “given the billions of dollars at stake, and number of people involved, this is easily the worst instance of government misconduct that POGO has seen.”

New Mexico Democratic Sen. Jeff Bingaman, the chairman of the Senate Energy Committee, called the reports “extremely troubling . . . especially given the potential for expanded domestic drilling.”

Rep. Nick Rahall, D-W.Va., the chairman of the House Natural Resources Committee, said the report on the RIK unit’s “outlandish” behavior “reads like a script from a television miniseries — and one that cannot air during family viewing time.”

Officials in the Interior Department and Minerals Management Service couldn’t be reached for comment.

The reports said that the RIK unit’s former Denver office director, Gregory Smith, encouraged his staff to develop close relationships with oil company officials so they could learn techniques for marketing the oil.

Separate investigative reports detailed evidence against Smith and Lucy Dennet, associate director of the Minerals Revenue Management office. They accuse Smith of having sex with two subordinates and with improperly accepting $30,000 from a private company for marketing its environmental and engineering services to oil and gas companies.

Dennet and an aide, Jimmy Mayberry, were accused of creating a lucrative contract to benefit Mayberry upon his retirement.

Devaney said that evidence against Smith and Dennet was referred to the Justice Department’s Public Integrity Section, which declined to prosecute.

One report said Smith told investigators that he’d approved employees’ attendance at industry events and their acceptance of meals and drinks.

Chevron, Shell, Gary-Williams Energy Corp. and Hess Corp. gave gifts to RIK staffers although they conducted business with the unit, either producing oil or buying it. Last May, investigators found that RIK staffers sometimes decided which company should win an oil contract in informal discussions among themselves and that dollar values of 118 of the sale contracts were later revised downward, costing taxpayers more than $4 million.

The investigators detailed gifts accepted by nine of the employees. They said that Stacy Leyshon, a supervisory minerals revenue specialist, got $10,450 in cash awards from the Minerals Management Service for meritorious service from 2002 to 2006, although her name showed up 45 times on Chevron’s expense reports during those years and she got 29 gifts from Shell and Gary-Williams Energy.

In 2004 and 2005, Leyshon attended Gary-Williams’ annual customer appreciation golf tournament in Colorado. Customarily, investigators said, the tournament included breakfast, lunch and dinner, a gift such as a golf bag or luggage and a ticket to a professional golf event or Colorado Rockies baseball game, the report said.

Leyshon at first told investigators that she made sure her gifts were under the $20 limit and didn’t disclose them on her annual financial disclosure report because they didn’t fall within reporting requirements, a report said. Later, it said, she admitted that she probably exceeded the gift threshold.

The investigators said that most industry representatives admitted entertaining RIK employees but denied that the gratuities were provided in exchange for official action. Several, however, rejected the assertion that federal employees needed to participate in industry events to perform their duties effectively.

Blanchflower told MPs to expect “a large increase in unemployment”, and warned that a “horrible surprise” could be just around the corner. The gloomy assessment sent shares in London falling, and also weakened sterling yet further against the dollar.

Blanchflower, who has repeatedly tried and failed in recent months to persuade the MPC to cut interest rates, predicted that the unemployment count will rise by 60,000 a month for several months in a row, probably starting in October.

“I believe we will see a deeper economic decline than other people think,” Blanchflower told the Treasury select committee, ruling out the possibility that the UK GDP will not shrink.

He added that the employment market will come under extra pressure this autumn when school leavers look to join the workforce.

The claimant count has already risen for the last six months. In July it increased by 20,100, the fastest rate since the early 1990s.

The report by Masters Capital Management said investors poured $60 billion into oil futures markets during the first five months of the year as oil prices soared from $95 a barrel in January to $145 a barrel by July.

Since then, these investors have withdrawn $39 billion from those markets as prices have retreated dramatically, the report said. Oil traded at about $102 a barrel Wednesday on the New York Mercantile Exchange.

“We have clear evidence the fund flow pushed prices up and the fund flow pushed prices down,” said Michael Masters of Masters Capital Management, calling the amount of money moving into oil futures markets by large institutional investors in the early part of the year “way off the scale.”

Masters said its analysis shows investors “began a massive stampede for the exits” on July 15 and that this caused the price decline.

“These large financial players have become the primary source of the dramatic and damaging volatility seen in oil prices,” concluded the report.

The report was released Wednesday by House and Senate sponsors of bills to put additional curbs on oil market speculation and comes in advance of a report on oil market speculation expected possibly this week by the Commodities Futures Trading Commission. The commission regulates commodity markets.

Sen. Maria Cantwell, D-Wash., a sponsor of an anti-speculation bill, said the Masters report challenges CFTC claims to date that supply and demand forces — and not excessive speculation — has driven up oil prices.

“This analysis illustrates that when oil speculators poured large amounts of speculative money into oil markets, prices skyrocketed just as they were hoping … And when the speculative money got pulled out, prices tumbled,” she said.

Sen. Byron Dorgan, D-N.D., said he wants to know “how oil speculators were able to drive prices up and down while the CFTC was asleep at the switch.”

An interagency task force, led by the CFTC, concluded in an interim report last July that “fundamental supply and demand factors” influence the oil markets and that the data “does not support the proposition that speculative activity has systematically driven changes in oil prices.”

Senate critics of the regulatory agency charged that report was based in flawed evidence.

“The CFTC has its head in the sand,” said Rep. Bart Stupak, D-Mich., chairman of the House Energy and Commerce investigations subcommittee.

Stupak said the Masters report shows that that oil prices soared when speculators poured money into future markets even as the federal Energy Information Administration was forecasting supply would exceed demand.

Congress for months has been considering various measures aimed at curbing oil market speculation, but those efforts have been thwarted amid disputes over other energy issues from taxing oil companies to new offshore drilling.

“You serve your country and then destroy your life because the guy in the next bunk or the next foxhole becomes a sexual predator,” said Rep. Jane Harman (D-CA) of the females who have been sexually assaulted or raped while serving the country. Harman is attending a House subcommittee meeting today that will shed new light on the problem of sexual assault in the military.

“A woman who signs up to protect her country is more likely to be raped by a fellow soldier than killed by enemy fire,” said Rep. Jane Harman (D-CA), who introduced a bill this summer to increase and encourage the investigation of prosecution of sexual assault and rape cases in the military and is attending today’s hearing.

The bombers, known in the West by the NATO codename “blackjacks”, were not carrying nuclear weapons during the flight to South America and will return to Russia on September 15, Russian Air Force commander Vladimir Drik told Interfax.

“There were no nuclear weapons on board these planes,” Drik was quoted as saying.

The visit by the Tu-160 bombers is a show of strength by newly confident Russia at a time of tension with the United States after the war in Georgia and due to U.S. plans for a missile defense shield in eastern Europe.

On Wednesday, Venezuelan President Hugo Chavez said the planes were in the South American oil-exporting nation to strengthen military ties and counter U.S. regional influences.

The stock price unraveled in early trading Thursday after analyst reports cast doubt that the nation’s fourth-largest investment bank can survive.

Shares fell $2.99, or 41 percent, to $4.26 — down more than 94 percent from their 52-week high of $67.73.

Foreign battles aren’t new for the 1st Infantry Division, but this firefight is from another world, a clash between the New Army and Old over plans to commercialize the 1st Division’s historic “Big Red One” insignia in a sportswear line at Sears.

After days of questioning, the Army confirmed Monday the arrangement was first reached in June 2007 on the advice of an outside licensing agency, The Beanstalk Group in New York, but the full scope of the royalties to be earned has yet to be disclosed.

“I’m astounded,” said Rep. John P. Murtha (D-Pa.), who chairs the House appropriations panel overseeing the Pentagon’s nearly half-trillion-dollar budget.

“There is a great deal of concern among the senior Army brass about this deal,” said a Defense official.

But Sears, Roebuck and Co. is already moving to market its 1st Division “collection” this fall, and All American Apparel Inc., a privately held New York manufacturer, told Politico on Saturday that it had license from the Pentagon to proceed.

Caught most by surprise are combat veterans of the 1st Infantry Division, who see their familiar red-and-green shoulder patch splashed across Internet websites celebrating soldier chic.

“The U.S. Army launches an all-out fashion offensive,” reads the headline on stylelist.com. A Sears corporate press release quotes an unnamed Army spokesman extolling the new line for melding the “Army’s timeless traditions with iconic styling.” And following the Republican convention, the fashion blog Haute Concept added this note: “Now gun-toting soccer moms like Sarah Palin [can] get all their fight gear with one stop!”

Charles Horner, a retired Army officer now working for Murtha, isn’t happy. He served with the 1st Division in Vietnam, as did his father in World War II, including landings in North Africa, Sicily and Normandy.

“That patch is to be worn by only people who served in the 1st Division,” said Horner. “What right does the Army have to sell our patch?”