Panetta stripped Gen. William "Kip" Ward of a star, which means that he will now retire as a three-star lieutenant general. Ward also has been ordered to repay the government $82,000.
Secretary of the Army John McHugh concurred with Panetta's decision, Pentagon press secretary George Little said in a statement Tuesday.
The demotion came after retired Army Gen. David Petraeus resigned as CIA director because of an extramarital affair and Marine Gen. John Allen was being investigated for potentially improper communications with a woman.
"Secretary Panetta insists that leaders within the Department of Defense exemplify both professional excellence and sound judgment," Little said. "The secretary is committed to ensuring that any improprieties or misconduct by senior officers are dealt with swiftly and appropriately."
A spokesman for Ward said Tuesday that the general "has never been motivated by personal gain and fulfilled each and every mission assigned to him and served his country and the men and women assigned to his commands with distinction."
"While Gen. Ward is not perfect he has always been guided by his faith in God and the belief that there is no greater honor as a patriot than to lead those who choose to serve our nation in the armed forces," spokesman Chris Garrett said in a statement.
Retiring as a three-star general will cost Ward about $30,000 a year in retirement pay, giving him close to $208,802 a year rather than the $236,650 he would receive as a four-star general.
Army Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, had urged Panetta to allow Ward to retire at his full four-star general rank, according to defense officials.
A report by the Defense Department inspector general found that Ward used military vehicles to shuttle his wife on shopping trips and to a spa and billed the government for a refueling stop overnight in Bermuda, where the couple stayed in a $750 suite. The report detailed lengthy stays at lavish hotels for Ward, his wife and his staff members, and the use of five-vehicle motorcades when he traveled to Washington.
The report also said Ward and his wife, Joyce, accepted dinner and Broadway show tickets from a government contractor during a trip during which he went backstage to meet actor Denzel Washington. The couple and several staff members also spent two nights at the Waldorf Astoria hotel.
Other charges were that Ward often extended his overseas trips -- particularly those to the U.S. -- for personal reasons, resulting in "exponential" increases in costs.
Although the report included responses from Ward to a number of the allegations, investigators often found records and statements that contradicted his explanations. At one point, Ward defended the Bermuda layover, saying that it came up on short notice, which is why his security team had to stay there longer. The report found records showing that the layover had been planned for at least four days in advance.
A common theme running through the report was Ward's insistence that his wife travel with him at government cost, even though it was often not authorized and she performed few official duties. It said he also routinely stayed in high-priced suites in luxury hotels rather than in standard rooms or less expensive locales.
The allegations, coming after a 17-month investigation, delayed Ward's planned April 2011 retirement. And they were an embarrassing end note to his career, since he had claimed a place in history as the military's first commander of Africa Command.
Panetta's options regarding Ward were limited by complex laws and military guidelines. He had only one real choice: Allow Ward to retire as a four-star or demote him and force him to retire as a lieutenant general.
In order for Ward to be demoted to two-star rank, investigators would have to conclude that he also had problems before moving to Africa Command, and officials said that does not appear to be the case.
The investigation dragged on for so long that that Ward was temporarily dropped to two-star status. Under military guidelines, if a full general is not serving in a four-star command or office for more than 60 days, he or she is automatically reduced to two-star rank. Ward would not be able to recoup any back pay for the time at the two-star rank, even though he is being retired at the three-star level.
Major general, or two-star, is the highest rank to which an officer can be promoted by regular military action. Becoming a three-star -- lieutenant general -- or a four-star general requires a presidential nomination and confirmation by Congress. It, therefore, is not considered permanent and lasts only as long as the person is serving in a job of that rank.
That technical demotion is not uncommon as generals move from job to job and unexpected delays occur. It would not have affected Ward's ability to retire as a four-star, if he had been cleared of the charges.
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