-

with Mr. Bob Peck, the recently-appointed commissioner of GSA's Public Building Service3 weighed in to encourage a resolution of this issue. Indeed, Mr. Pagonis testified that he was told by the acting GSA Regional Administrator, Tom Sherman, that Mr. Peck was complaining about some "hard-headed contract officer" who was holding up the project. Appendix C, at 453. Eventually, Mr. Pagonis abandoned his original position and settled for provisions that would mitigate, but not eliminate, the risk to the government and without extracting any financial consideration in return for the significant economic benefit being conferred upon the partnership and Mr. Haney.10

-

This second supplemental lease amendment was signed on March 26, 1996, the same day that GSA signed a subordination agreement that permitted the loan transaction between Mr. Haney and the Portals partnership to successfully close -- which also occurred on that same day." Mr. Haney formally had joined the Portals partnership only days earlier, on March 22, 1996.

While GSA officials insisted that both sets of lease changes were commonly agreed to by GSA in securitized deals of this kind, there also is universal agreement among those officials that the Portals project presented an unprecedented situation given the earlier GSA default, the history of litigation between the parties, and the unwillingness of the intended tenant (the FCC) to cooperate with the building design and relocation to that site. 12 Agreeing to a fixed rent start date, for instance,

8

9

10

11

12

Mr. Peck left the FCC and joined GSA in this position in late December 1995.
Mr. Knight testified that he recommended Mr. Peck for this job in a conversation
with Barbara Silbey, GSA Administrator Johnson's chief of staff. Appendix B, at
482-484. Ms. Silbey confirmed this account in her interview with Committee
staff. Mr. Johnson, when questioned about the hiring of Mr. Peck, recalled a
favorable recommendation from U.S. Senator Daniel Patrick Moynihan (for
whom Mr. Peck had worked at one time), but was unaware of Mr. Knight's
involvement in the hiring process. Mr. Peck, for his part, recalled Mr. Knight
contacting him to see if he would be interested in the GSA position. Appendix C,
at 387.

Mr. Peck testified that, during the Portals lease negotiations, he received calls from people representing Parcel 49C and Mr. Haney, but that he had no specific recollection of being contacted about this particular issue. Appendix C, at 453454.

In his interview with Committee staff, Mr. Pagonis acknowledged that, with respect to this second supplemental lease amendment, "Haney's people tried to go over my head." He also stated that he primarily negotiated this supplement with Mr. Wagster, not with Parcel 49C.

One condition of the loan was that the partnership and GSA would enter into a subordination agreement acceptable to the lender (Mr. Haney's company, the Building Finance Company of Tennessee, Inc.). That subordination agreement, in turn, specified GSA's agreement to the key lease changes necessary for securitization of the lease. See Appendix A, at 71-87; Appendix A, at 88-92.

By contrast, one of the key examples cited by GSA of a situation in which it had agreed to a fixed rent start date and an elimination of the partial destruction termination clause was the Postal Square complex. But, according to GSA regional counsel Jeff Dunn, in that situation, GSA had an eager and cooperative tenant and received a 30-year fixed rent at a rate below current market conditions. The Portals lease, however, is fixed for only 20 years, and at a rate that currently

certainly was a highly questionable decision in this context, as the chief contracting and legal career officials involved with the project clearly recognized at the time.13

B. The Credibility of the Testimony of Haney and Wagster

Throughout their testimony, both Mr. Haney and Mr. Wagster attempted to portray their dealings with GSA officials as mere "due diligence" -- simply gathering information about the existing Portals lease -- and both men refused to admit that they were actively seeking changes to that lease. Their testimony on these and related issues evidences an intent to mislead the Committee about material matters.

For example, Mr. Haney was asked at least four times to answer the relatively simple and straightforward question: "Were you and your attorneys actively involved in the lease amendment negotiations?" Mr. Haney failed to answer the question the first three times, finally stating: "I'm not a detail person, so I wasn't actively involved, and my staff was only, as I said, peripherally involved, because this was one of many projects we were working on." Appendix A, at 23. Mr. Haney also testified, when asked whether Mr. Knight or Mr. Sasser solicited or obtained the supplemental lease changes for him: "No, sir. The lease was -- the supplement was before I ever became a partner." Appendix C, at 304.

Mr. Wagster, for his part, testified on several occasions that his role with respect to the leasing issues was to "monitor" the negotiations between GSA and Parcel 49C, and that his contacts with GSA officials were efforts to determine only whether GSA would "honor" the existing lease for the Portals. Appendix B, at 205, 216, 218, 242. In fact, Mr. Wagster flatly testified that he and Mr. Haney's team of representatives were not trying to change the lease terms:

Mr. Barton. Reclaiming my time, I don't dispute

that they wanted to know [GSA's
intentions], Congressman. Where you
and I have a disagreement is, based on
the documents and the testimony that
I've heard and read, they were doing

13

is at the higher end of the market range, according to Mr. Pagonis. Appendix C, at 595.

In return for agreeing to a fixed rent start date, Mr. Pagonis stated that GSA
received a reduced rent on a portion of the space and a waiver by Parcel 49C of
any delay claims it might have had against the government. Appendix C, at 446.
Mr. Pagonis also estimated that the value of the waiver of claims by Parcel 49C
was roughly $17 or $18 million, while the reduced rent was worth several million
dollars over the 20-year term of the lease. Appendix C, at 446- 447. Mr. Pagonis
acknowledged, however, that he did not do a precise calculation of the savings at
the time he agreed to these changes, and that the fixed rent start date of July 1997
already had cost the government approximately $17 million in rent on a building
that was empty until November of this year. Appendix C, at 450. Furthermore, in
their interviews with Committee staff, Mr. Pagonis, Ms. Roach and Ms. Hewitt all
confirmed that the waiver of delay claims by Parcel 49C was a necessary
condition for GSA's agreement to enlarge the lease from 287,000 square feet to
over 500,000 square feet, which was worth at least an additional $160 million in
guaranteed rental payments to Parcel 49C over the term of the lease. Mr.
Hutchens, Parcel 49C's chief negotiator, testified similarly. Appendix B, at 28.

Appendix B, at 217. And Mr. Haney, when asked whether he desired and conveyed to GSA his interest in obtaining a change to the lease to include a fixed rent start date, testified: "I mean I'd have to be guessing because I don't remember." Appendix A, at 108.14

As pointed out in detail above, however, the weight of the contrary evidence is overwhelming. In every meeting or discussion Mr. Haney and his representatives had with GSA officials in the summer of 1995, they requested that those government officials agree to specific lease changes in order to facilitate Mr. Haney's financing scheme -- including a fixed rent start date. The documents provided by GSA, Mr. Haney, and Mr. Knight -- including two letters written by Mr. Wagster himself13 and sent to GSA under Mr. Haney's and Mr. Wagster's signatures -- conclusively rebut the sworn testimony of these two men on this point. See Appendix A, at 18-19, 27, 37, 120122, 379-381. So does the testimony of Mr. Knight, who admitted that his efforts were aimed at "advocating" Mr. Haney's position with GSA officials (Appendix B, at 477) not gathering information, not monitoring, but advocating a specific position on Mr. Haney's behalf ("we need changes in the lease"). Further, the testimony and documentation provided by GSA officials is clear that they believed Mr. Haney and his representatives were, in fact, seeking specific lease changes that would permit Mr. Haney to use bond financing. Appendix A, at 37; Appendix C, at 423.

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The notion that these activities were mere "due diligence," as both Mr. Haney and Mr. Wagster repeatedly testified, is farcical. As described by the American Law Institute-American Bar Association Committee on Continuing Professional Education, the process of due diligence, in the context of any investment in a business or venture, involves investigating

the operations and assets of the business, as well as the actual and
potential liabilities of the business. A prospective buyer of, or lender
to, the business uses this information to assess the possible risks and
rewards of the investment. Investors also use information obtained
in the due diligence review to negotiate the specific terms of their
investment, such as the terms of a stock purchase agreement or a loan
agreement.

Appendix D, at 4 (emphasis added). As the above quotation makes clear, "due diligence" is an information gathering technique used to assess the current state of affairs, while "negotiation" involves using the information gathered during due diligence to achieve a desired outcome. Put into the context of this matter, due diligence would have been reviewing the current GSA-Portals lease

14

15

Mr. Haney finally did admit that "somebody in [his] organization did" seek this lease change from GSA in the June 19, 1995 letter that went out under his name to the GSA Regional Administrator. Appendix A, at 109.

Mr. Wagster authored and signed the March 8, 1996 letter to Mr. Pagonis seeking lease changes, and admitted authoring the June 19, 1995 letter from Mr. Haney to Mr. Davis. Appendix B, at 14-15, 210-212.

to determine what its terms were, while negotiation would have been seeking changes to that lease as a condition for making the loan agreement. Mr. Haney and his representatives clearly did both, crossing the line from due diligence to negotiation.

In addition, Mr. Wagster twice stated under oath that his strategy for dealing with GSA was to "start out by meeting with the lowest on the totem pole and then the highest guy." Appendix B, at 41, 241. However, the evidence gathered by the Committee reveals the exact opposite: Mr. Wagster and Mr. Haney first met with the "highest guy" in the GSA region responsible for the Portals lease -- Mr. Thurman Davis, on June 19, 1995 -- and then gradually worked their way down to the contracting officer, Mr. Pagonis, with whom they met on August 2, 1995 (after having a discussion with Mr. Pagonis' supervisors at the end of July). Mr. Wagster also testified that the Haney team's subsequent decision to seek a meeting with the top political officials at GSA headquarters on August 14, 1995, was the result of those prior conversations "bearing fruit," as well as questions surrounding the issuance of a notice to proceed by GSA in July 1995. Appendix B, at 41. In fact, there is no evidence that the prior meetings with Mr. Davis, Mr. Lawson, and Mr. Pagonis were productive, and -- as Mr. Knight testified -- there was a contrary sense among Mr. Haney's team that those lower-level discussions had "stalled," which prompted Mr. Knight to arrange the August 14 meeting. Appendix B, at 278. Further, there is no evidence that any issues relating to the July 1995 notice to proceed were even discussed at the August 14 meeting in the GSA Administrator's office. Rather, the evidence strongly suggests that, contrary to Mr. Wagster's testimony, the Haney team strategy was to use its political connections at the highest levels of GSA to help "move GSA in the right direction," as Mr. Haney specifically urged Mr. Knight to do. Appendix A, at 27.

There is substantial reason to believe that these apparently false and misleading statements by Mr. Haney and Mr. Wagster were made with an intent to deceive the Committee and obstruct its lawful and legitimate fact-finding processes. Truthful responses would have undermined both their legal and political positions, by acknowledging that they were seeking lease amendments, and doing so at the highest political levels of GSA. While there is nothing per se illegal about such conduct in and of itself, the payment or receipt of contingency fees for achieving these government lease changes could well expose both of them, and others, to charges of illegality. See Report Sections IV, V, & VI, infra. In addition, truthful responses would have cast considerable doubt upon the credibility of the public assertions by Mr. Haney and his representatives that they did not use or attempt to use their political influence to obtain favorable government treatment on this project.

Accordingly, further investigation by the Department of Justice is warranted as to whether Mr. Haney and Mr. Wagster violated the False Statements Act, 18 U.S.C. § 1001, and/or the Federal Perjury Statute, 18 U.S.C. § 1621, in their sworn testimony before the Subcommittee on this particular matter.

III.

HANEY'S EFFORTS TO GAIN FCC COOPERATION IN RELOCATING TO
THE PORTALS

A. The Chronology of Events

As noted above, one of Mr. Haney's concerns with respect to joining the Portals partnership and financing the project was whether the FCC would, in fact, end its long and vigorous opposition and agree to relocate to the Portals site. Although Mr. Haney stated in his sworn testimony that he did not care whether the FCC would relocate to the Portals site, his own actions -- and those of his paid representatives -- strongly suggest that securing the FCC's cooperation in relocating to that site was of particular interest to his partnership and financing plans.

Even before making their first contact with GSA, Mr. Haney and Mr. Knight met with Mr. Robert Peck, the FCC political official handling the Portals issue for Chairman Hundt, on at least one occasion (and probably twice) to discuss the FCC's position on relocating to the Portals. 16 These meetings, which were held in Mr. Knight's law offices, were arranged by Mr. Knight, who had a longstanding professional relationship with Mr. Peck. Appendix B, at 467; Appendix C, at 372373.17 Mr. Peck, in his testimony before the Subcommittee and in an interview with Committee staff, stated that, when Mr. Knight called him to request the first meeting, Mr. Knight identified Mr. Haney as a "friend of Al's" -- meaning Vice President Al Gore who was interested in getting involved in the Portals project, but who wanted to know whether the FCC would, in fact, be relocating to that site. Appendix C, at 379. Mr. Peck testified that he responded that he thought the chances of the FCC moving to the Portals was "50-50." Appendix C, at 390-391. Mr. Peck also testified that the two meetings he had with Mr. Knight and Mr. Haney followed along those same lines. Appendix C, at 390-391.

Mr. Haney testified that, while he could recall one meeting with Mr. Peck and Mr. Knight, he could not recall what was discussed - or even if it was related to the Portals project. Appendix A, at 119. Indeed, Mr. Haney testified that he did not even know whom Mr. Peck was at the time of the meeting or why he was meeting with him. Appendix A, at 119. Compounding this obfuscation, Mr. Haney answered a direct question asking him whether the FCC's decision in late 1995 to accept the Portals space assignment influenced his subsequent decision to join the partnership and finance the building of this project, by stating "no, sir." Appendix A, at 20.

Mr. Knight, for his part, recalled contacting Mr. Peck to set up the first meeting, and recalled at least one actual meeting with Mr. Peck to discuss whether the FCC was going to move to the Portals. Appendix B, at 467-470. But Mr. Knight did not recall discussing with Mr. Peck the fact that Mr. Haney was friends with Vice President Gore. Appendix B, at 467. Furthermore, his recollection of his meeting with Mr. Peck differed materially from Mr. Peck's recollection, in that Mr. Knight's impression following that meeting was that the FCC's move to the Portals was "in many respects a fait accompli":

Mr. Greenwood.

Mr. Knight.

Had you not ascertained in your mind
Mr. Peck's willingness or lack of
willingness to move forward?

Well, Mr. Peck didn't have any choice but to move
forward. He was under a court order. The FCC was
under a court order to move.

Appendix B, at 470.

Mr. Knight's testimony regarding the FCC being under a court order appears not only inconsistent with Mr. Peck's recollection of their discussion ("50/50" chance FCC was moving to the Portals), but also with a June 19, 1995 document produced to the Committee from Mr. Knight's files. Appendix A, at 120-122. This document sheds further light on the substance of the

16

17

According to the calendars of Mr. Knight and Mr. Peck, they met in Mr. Knight's law offices to discuss the Portals on May 23, 1995, and then again on June 1, 1995.

Mr. Peck, in his interview with Committee staff, acknowledged that it was "not very often" that he would have meetings relating to official FCC business in a private lobbyist's office.