meeting where the lease was the primary focus -- clearly both the June 19 and August 14, 1995 meetings at GSA were focused primarily on the lease changes necessary for Mr. Haney's loan commitment. Moreover, his more blanket assertions that he was not involved in any way with the leasing issues clearly were false, as there is no doubt that the lease changes were integral to Mr. Haney's financing plans and were the subject of meetings that Mr. Sasser attended and in which he actively participated. These apparently false statements were knowing, willful, and material, and appear to have been designed to deceive and mislead the Committee with respect to his role in assisting Mr. Haney in obtaining desired lease changes from GSA. And his motive for doing so was clear -- to avoid any charge that his receipt of a $1 million contingency fee was related to his efforts on a Federal contract.

Accordingly, the evidence warrants an investigation by the Department of Justice into whether Mr. Sasser committed perjury or violated the False Statements Act in his sworn testimony before the Subcommittee on this particular matter, in violation of 18 U.S.C. § 1621 and/or 18 U.S.C. § 1001.

THE $500,000 FEE ARRANGEMENT BETWEEN HANEY AND WAGSTER

VI.

A.

The Chronology of Events

At approximately the same time that Mr. Haney hired Mr. Sasser and Mr. Knight, he also engaged the services of another Washington attorney named John Wagster, who had worked in the Senate for then-Government Affairs Committee Chairman James Sasser and who, following Mr. Sasser's election defeat in November 1994, entered private practice alongside Mr. Sasser. While the two men did not form a formal partnership, they shared office space (at no charge) in Mr. Haney's offices in Washington, D.C., and worked together on many of the same projects for Mr. Haney, including the Portals. Appendix B, at 52.

Early in their relationship, Mr. Haney and Mr. Wagster did not have any firm understanding with respect to compensation. Essentially, Mr. Wagster was assisting Mr. Haney as needed, in return for free office space. Appendix B, at 52. But in May or June 1995, Mr. Haney and Mr. Wagster reached an oral agreement under which Mr. Wagster would be paid a general retainer of $5,000 per month, an amount that was subsequently increased to $10,000 per month. Appendix B, at 53. In addition to this general retainer -- which, according to Mr. Wagster, was "for work that I did on a day-to-day basis for Mr. Haney's projects" (Appendix B, at 56) -- Mr. Wagster testified that he and Mr. Haney agreed that "as we worked on individual projects, it was my understanding that as those projects, you know, turned out favorably for him, that I would receive compensation, additional compensation." Appendix B, at 53. Specifically with respect to the Portals project, Mr. Wagster testified:

In February or early March of 1996, when it became more apparent
that Mr. Haney was going to enter into the Portals partnership, I went
to him and discussed how much that [additional] payment should be,
and we agreed that $500,000 -- ultimately agreed that $500,000 was
a fair figure.

Appendix B, at 54-55.

On March 29, 1996 -- three days after Mr. Wagster successfully persuaded GSA officials to agree to additional lease changes that sealed the Portals deal for Mr. Haney -- Mr. Haney issued a check to Mr. Wagster for $500,000 out of the checking account of Building Finance Company of Tennessee, Inc., the special purpose corporation established to conduct the Portals financing. Appendix A, at 133. This account record is the only documentary evidence of the parties' agreement, since their oral understanding was never set forth in writing, and Mr. Wagster did not issue to Mr. Haney any type of invoice explaining the nature of the fee or describing the services provided therefor.

-

as it appears

When questioned by the Subcommittee as to whether this payment was contingency fee based at least in part for his efforts in obtaining the GSA lease amendments, Mr. Wagster flatly denied it, stating:

Mr. Wagster. Sir, there is one question of legality that I have

Mr. Barton.

studied quite carefully, and I would like to expound
on it. It would have been illegal for me or anyone else
to receive $500,000 as a contingency fee for helping
to obtain a Federal lease. I did not do that. I received
$500,000 when Mr. Haney entered into a partnership
with Parcel 49C and loaned Parcel 49C $100,000
[sic]. That is entirely legal. It doesn't matter whether
I received it *** for one project, or for many other
projects. It is entirely legal. It is not based on a
government lease.

None of the other projects, according
to what you just said, have been
successfully completed. You've also
said that you received a monthly
retainer, or retainers, from Mr. Haney
for -- I assume that was for work that
was ongoing. There has been one
project that has been successfully
completed, and within days after the
second lease being signed, the second
addendum to the lease, you received a
half a million dollars. And on the face
of it, that certainly appears to be a
contingency fee for receiving a
Federal contract. I am not aware

-

Mr. Wagster. I am telling you under oath, Sir, that

my payment was based on Mr. Haney
entering into a partnership with Parcel
49C and loaning Parcel 49C $100
million....

Appendix B, at 56-57. Mr. Wagster also disputed the close timing between the GSA lease amendments and the payment of the fee, stating that the fee was paid "several months after Parcel 49C entered into an [supplemental lease amendment] in early January." Appendix B, at 53. When reminded of the fact that there was a second supplemental lease negotiated and signed in March 1996 (just days before he received his $500,000 payment), Mr. Wagster swore under oath that he was "not aware of a second supplemental agreement." Appendix B, at 54.

Yet, when he was later questioned about his personal and documented efforts to secure that second supplemental lease amendment so as to permit the financing deal on the Portals to close, Mr. Wagster acknowledged his extensive involvement. Appendix B, at 205, 218-220. He also conceded that it was a "major" last-minute stumbling block raised by the attorneys for the bond raters, who said that they would require this lease change "in order to rate the lease." Appendix B, at 205. Given his active efforts -- including direct negotiations with the GSA contracting officer -- and the importance of this second lease supplement to the entire deal and his receipt of a $500,000 fee, Mr. Wagster's earlier testimony that he was unaware of that second GSA agreement or its close timing and relationship to the closing of the final deal appears inexplicably false."1

71 One plausible explanation is that, when denying his awareness of a second lease supplement, Mr. Wagster was hoping that he would not be questioned in detail or shown documents concerning his involvement with it. Accordingly, the

B.

Potential Civil and Criminal Violations Committed by Haney and Wagster

As the above evidence demonstrates, Mr. Wagster did not deny that his $500,000 fee from Mr. Haney was contingent upon the Portals closing or that it was for his Portals work. He denied only that his fee was contingent upon the execution of the GSA lease supplement specifically.72 According to a March 8, 1996 letter Mr. Wagster drafted and signed and sent to the GSA contracting officer, however, GSA's agreement to Mr. Haney's proposed lease supplement was critical to the closing of the Portals transaction. Appendix B, at 210-212. Indeed, the very day GSA agreed in writing to those changes, the Portals deal closed, prompting Mr. Wagster's receipt of a $500,000 fee just three days later.

The language and intent of the statute barring contingent fees on Federal contracts simply cannot support Mr. Wagster's strained interpretation of it. As before, the relevant question is: Would he have received the fee if not for GSA's agreement, at his urging, to sign a supplemental lease amendment incorporating Mr. Haney's requested changes? The short answer is apparently no, thus providing strong evidence that the fee arrangement between Mr. Haney and Mr. Wagster was unlawful.

Accordingly, GSA and/or the Department of Justice should take immediate steps to recover the $500,000 fee from Mr. Haney or Parcel 49C or deduct that amount from its contractual obligations to the partnership, as authorized by statute and regulation. GSA also should suspend Mr. Haney from contracting with the government in the future, as permitted by regulation.

For the reasons discussed earlier with respect to the contingent fee arrangement between Mr. Haney and Mr. Knight (Report Section IV, supra), it appears that Mr. Haney may have violated the False Statements Act, 18 U.S.C. § 1001, and/or the False Claims Act, 31 U.S.C. § 3729, by knowingly causing a false statement to be filed with the government with respect to his partnership's contingent fee relationships. Accordingly, there is sufficient evidence to warrant investigation by the Department of Justice.

Department of Justice also should investigate whether Mr. Wagster's clearly false
statement was willfully made, and if so, whether he should be prosecuted under
either the False Statements Act, 18 U.S.C. § 1001, or the Federal Perjury Statute,
18 U.S.C. § 1621.

At one point in his testimony, Mr. Wagster suggested that the fee was for his work
on "any number of projects" on which he and Mr. Haney were working, not just
the Portals. Appendix B, at 55-57. But that testimony is inconsistent with his
testimony regarding the nature of the general retainer, which he said was
compensation for the day-to-day work on all Haney projects regardless of success
(Appendix B, at 56), and the "understanding" that he would receive additional
compensation as particular projects were successfully concluded. Appendix B, at
53. The only logical interpretation of the various fee arrangements between Mr.
Haney and Mr. Wagster is that the additional compensation represents a success
or contingency fee for a particular project, and is not additional general
compensation for the unsuccessful work on other projects, which is covered by
the general monthly retainer. This interpretation is supported by the fact that,
while Mr. Wagster continues to receive his monthly retainer, he has not received
any other lump sum payments from Mr. Haney since the Portals payment because
none of the other projects have been successfully completed. Appendix B, at 55.

VII. OTHER HANEY CONTINGENCY AGREEMENTS WITH KNIGHT AND SASSER

Despite Mr. Haney's repeated assertions that he "would never pay a contingency fee" on a Federal contract, there is substantial evidence that he conducted his government business in such an unlawful manner on at least several occasions. In addition to the Portals-related fee arrangements discussed above, other evidence confirms that Mr. Haney offered to pay both Mr. Knight's law firm and Mr. Sasser success or contingency fees upon the completion of projects involving government

contracts.

A.

Haney's Leases with the Tennessee Valley Authority

1.

Haney's Efforts to Secure a TVA Lease Extension to Help
Finance the Portals:

Beginning at least as early as May 1994, Mr. Haney sought to gain the agreement of career officials at the Tennessee Valley Authority (TVA) to extend certain leases that TVA had on Haneyowned properties in Tennessee and Alabama. Appendix E. One of those leases was on the Chestnut Street Towers, a building owned by Mr. Haney in downtown Chattanooga, Tennessee. TVA began leasing this facility in August 1986, under a 10-year lease that expired in 1996, but had indicated to Mr. Haney as early as 1992 that it was unlikely to renew the lease after its expiration because it no longer needed the space. See Appendix F. Indeed, TVA utilized less than 40% of the 163,000 square feet it rented in this building, and most of the utilized space was sublet to private tenants by TVA rather than used by TVA directly. Mr. Haney believed at the time, however, that if TVA vacated this space it would result in his defaulting on the current mortgage on that facility. Appendix F.

Because Mr. Haney was aware of the strong, negative views of him and his proposed lease extensions held by TVA personnel in charge of property leasing, he appealed directly to TVA Chairman Craven Crowell, a person whom he knew through his association with then-Senator James Sasser." Mr. Crowell had served as chief of staff to then-Senator Sasser and, reportedly with Mr. Sasser's assistance,” had been nominated for the TVA chairmanship by President Clinton. In a letter dated November 21, 1994, Mr. Haney asked Mr. Crowell to extend all five of his expiring leases, including Chestnut Street Towers. Appendix I. Several weeks later, Mr. Crowell asked TVA's Chief Administrative Officer, Mr. Norman Zigrossi, to look into the matter for him, stating that Mr. Haney was dissatisfied with TVA's leasing personnel.

Mr. Zigrossi initially passed Mr. Haney's correspondence down to the head of the TVA Facility Services Division (FSD), a career employee named David Gentry. Mr. Gentry's staff, which was in charge of real property planning and leasing, met with Mr. Haney and told him that they would not extend the Chestnut Street Towers lease and would exit the building upon the termination of the existing lease. Mr. Kim McDowell, who represented TVA at that meeting, told Committee staff that he was "uncomfortable" leaving the meeting because of Mr. Haney's unwillingness to accept TVA's decision. In fact, following this meeting, Mr. McDowell told two of his colleagues

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TVA's property leasing staff did not have a high regard for Mr. Haney personally,

or the way that he did business, according to recent interviews conducted by Committee staff, as well as contemporaneous statements given by these employees to the TVA Inspector General's Office. In particular, TVA staff believed that Mr. Haney had operated "close to the edge of the law" during his early-1980s association with notorious financier Jake Butcher, at least according to Mr. Zigrossi's interview with the TVA Inspector General's Office. See Appendix G, at 1.

See, e.g., "Contacts Often Key to a TVA Contract," The Knoxville News-Sentinel,
April 21, 1996. Appendix H.

that Mr. Haney had told him that TVA would extend the lease regardless of FSD's recommendation because of Mr. Haney's relationship with TVA Chairman Crowell."

Undeterred, FSD staff drafted a written response to Mr. Haney for Mr. Crowell's signature that rejected outright Mr. Haney's extension proposal on four of the five properties, including Chestnut Street Towers. Appendix K, at 2-3. With Mr. Gentry's approval, the draft letter was sent forward for Mr. Crowell's signature, but was significantly altered before being sent to Mr. Haney (and without any input from FSD staff). Instead of rejecting four of the five lease extensions, the final letter, as sent on January 19, 1995, stated that Mr. Zigrossi would be willing to meet with Mr. Haney to discuss all five lease extensions. See Appendix K, at 1.

In early February 1995, Mr. Zigrossi met with Mr. Haney to discuss his TVA leases, following which FSD staff drafted yet another letter to Mr. Haney stating that TVA would exit the Chestnut Street Towers facility when the lease expired in 1996, and would not renew three of the other four leases. Appendix L. It does not appear, however, that this letter drafted for Mr. Zigrossi's signature and approved by Mr. Gentry ever was sent, as Mr. Zigrossi continued to meet with Mr. Haney throughout 1995 to directly negotiate these TVA leases, including Chestnut Street Towers. According to FSD staff, Mr. Zigrossi's personal handling of the lease negotiations was a marked departure from routine practice, and was considered highly unusual. Appendix M, at 5; Appendix N, at 3-4.76 Mr. Zigrossi also kept Mr. Crowell directly and personally informed about the status of his negotiations with Mr. Haney, according to Mr. Zigrossi's interviews with Committee staff and the TVA Inspector General's Office.

Despite the initial general consensus among FSD staff that TVA did not need the space, Mr. Zigrossi reached a tentative agreement with Mr. Haney in June 1995 to extend the Chestnut Street Towers lease for an additional five years, but at a rental rate reduced by $1 per square foot. Concerned about possible political influence in this deal, the TVA Inspector General's Office launched an administrative inquiry on August 9, 1995." The next day, August 10, 1995, Mr. Haney and Mr. Zigrossi reached a "final" agreement to extend the lease for 10 years, but with TVA retaining the right to terminate the lease for any reason upon only six-months notice. Appendix P. After two weeks of investigation, the TVA Inspector General's Office closed down the inquiry (without interviewing Mr. Haney or seeking his records), satisfied that the lease extension was a reasonably good business decision for TVA, primarily in light of the rental rate reduction and the six-month termination provision contained therein. See Report of Administrative Inquiry, dated August 30, 1995 (attached hereto as Appendix O). Indeed, Mr. Zigrossi and Mr. Gentry both told the TVA Inspector General's Office that the termination provision was a key clause justifying the

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According to TVA documents and interviews, Mr. McDowell and Ms. Sharon
Powell, the TVA leasing agent for Chestnut Street Towers, discussed the effect of
the next presidential election (November 1996) in their deliberations on whether
to extend Mr. Haney's leases. See Appendix J. When questioned about this
matter during their interviews with Committee staff, both individuals
acknowledged that political considerations can play a role in TVA's decisions,
given that the chairman of its board is presidentially appointed.

Mr. Zigrossi previously had negotiated an easement for TVA, but no one
questioned at TVA could recall his direct involvement in lease negotiations.

Specifically, the TVA Inspector General's Office had received allegations, from
reportedly well-informed and reliable sources, that Mr. Crowell had instructed
Mr. Zigrossi to "heip Haney out for a few years," and that Mr. Haney had told
FSD staff that, if they did not recommend extending his leases, they would be
"embarrassed," since Mr. Haney had helped Mr. Crowell get his chairmanship and
had enough political clout to ensure that TVA eventually would extend his leases.
See Appendix O, at 3.