Government prosecutors say there was "insufficient evidence" to prosecute two former Interior Department officials implicated in a sex-and-gift scheme involving oil and gas marketers, adding that the inspector general's decision in protest to pull staffers off a task force investigating the Jack Abramoff lobbying case was an "extraordinary step."

Last month, the Interior Department's inspector general, Earl E. Devaney, told the House Natural Resources Committee that he was disappointed that two now-retired employees -- former oil royalty office chief Gregory W. Smith and former associate director Lucy Querques Denett -- were not prosecuted.

Investigators allege that Smith, 56, was among a group of more than a dozen employees who took gifts from clients; was involved in illicit sexual relationships with subordinates; purchased cocaine at his office; and arranged improper outside consulting deals that allowed him to earn more than $30,000.

The inspector general's reports also accused Denett, 55, of improperly arranging a million-dollar deal for two retired employees, both of whom have pleaded guilty to federal conflict-of-interest charges. Denett and Smith have declined to comment on the reports.

In a letter (PDF) to House Judiciary Committee Chairman John Conyers Jr. (D-Mich.), the attorney general's office said it lacked evidence in one case and "reviewed" the other case before deciding not to prosecute either Denett and Smith.

"Department prosecutors agreed with the DOl IG agents that there was insufficient evidence of criminal misconduct to support a prosecution with regard to one matter," wrote Keith B. Nelson, the principal deputy attorney general. "After consultation with the DOl IG, thorough investigation, and careful review by experienced career prosecutors in the Criminal Division's Public Integrity Section, we declined further action on some matters."

Conyers called the letter an "incomplete and entirely unsatisfactory response," adding that he was "shocked" it had been approved by the Justice Department.

"I can accept that not every request for information from Congress will be met with open arms at the Department of Justice," Conyers said (Conyer's original letter PDF and follow-up letter PDF). "But our system of checks and balances cannot function if Congressional requests are simply ignored or met with empty boilerplate that does not even explain why they are being denied."

In his response, Nelson also made note of the decision by the inspector general's office to pull people off the task force investigating the Abramoff case.

"The Department places a high priority on investigating and prosecuting public corruption and, consequently, we especially regret the DOl IG's decision to withdraw his support for an unrelated public corruption investigation," Nelson wrote. "We share your view that this was an extraordinary step, but it has not impeded our investigation."

Nelson also dismissed a McClatchy report that found senior Justice Department officials blocked the U.S. attorney in Colorado from supporting a whistleblower's suit last year regarding oil royalties as "misinformation." In his follow-up letter, Conyers asked that Nelson's accusation be clarified.