extension because it gave TVA the flexibility it needed to get out of the lease if future circumstances warranted. See Appendix G, at 3; Appendix Q, at 4.78 At approximately the same time, Mr. Haney was considering whether and how to finance the Portals project in Washington, D.C., meeting with numerous government officials, financiers, and partners in the Portals. His original financing plan, dating back at least to July 1995, was to defease and refund certain bonds that he acquired as a result of his sale of a portion of Chestnut Street Towers to an entity known as the Partnership for Economic Progress (PEP). PEP had purchased certain floors of the 16-story building from Mr. Haney in the early 1990s, through the use of public bonds that had been issued by the Industrial Development Board of the City of Chattanooga. In essence, Mr. Haney's plan was to issue and sell new tax-exempt bonds to pay off the old bond holders, while raising enough additional money (roughly $45 million) to purchase the partnership interest in the Portals then held by financially-troubled Confederation Life." These new bonds would be backed by two sources: the GSA-Portals lease payments, and a second mortgage on the Chestnut Street Towers. See Appendix R, at 4; Appendix C, at 90-97; Appendix B, at 7-12. In order to refinance the Chestnut Street Towers, however, Mr. Haney needed a firm, longterm lease extension from his main tenant, TVA -- that is, he needed TVA to waive its unconditional right to terminate the lease upon six-months notice. Appendix S. So, Mr. Haney sought Mr. Zigrossi's agreement to waive this provision, which Mr. Zigrossi did in a supplemental lease dated November 22, 1995. Appendix T. That supplemental lease also eliminated entirely the $1 per square foot rental reduction, but in exchange for Mr. Haney's agreement to pay all property taxes on the property (a portion of which TVA had been paying). However, it does not appear that TVA gained any additional consideration from Mr. Haney for giving up one of the key provisions in the lease and locking itself into a questionable 10-year, $16 million agreement with no termination for convenience provision.80 TVA documents and interviews confirm that FSD staff, and at least initially Mr. Zigrossi, believed that the retention of a six-month termination clause was "essential" to any extension deal. Appendix U. Mr. Michael McGuiness, TVA's former master space planner for the Chattanooga area, told Committee staff that he learned about the waiver from Mr. Gentry and was upset that TVA was going to give up this critical right. He also stated that Mr. Gentry replied that they "needed to support Norm [Zigrossi]" on this issue and that the termination clause was "killed for refinancing reasons." Similarly, Ms. Kathy Foster, TVA's property management manager, told the TVA Inspector General's office that she was "told not to" question the waiver of this right. Appendix V. Several weeks after the Chestnut Street Towers lease extension was signed, Mr. Haney and Confederation Life signed an agreement with respect to the potential purchase of the latter's partnership interests in the Portals, under which Confederation could choose to accept as consideration either the transfer of the Chattanooga bonds (following their defeasement and refunding by Mr. Haney) or a set amount of cash. See Appendix W, at 1-2. However, at some point apparently thereafter, Mr. Mancuso advised Mr. Haney that there were tax-related problems with the Chattanooga bonds, and that it was unclear whether the IRS would grant them tax-exempt status. 78 79 80 According to FSD staff, a six-month or one-year termination for convenience As an alternative to paying cash, Mr. Haney also considered transferring Officials in the TVA Inspector General's Office just recently learned that these changes to the lease were made after they had concluded their investigative inquiry, and in interviews with Committee staff, expressed concern about the continuing validity of the conclusions contained in their August 1995 report. 53-568 99-3 Appendix B, at 9. Thus, Mr. Haney abandoned his plans to defease these bonds to finance his interests in the Portals and never refinanced the Chestnut Street Towers.81 According to the TVA Inspector General's Office, TVA currently occupies only 26,409 square feet (housing 92 employees) out of the 163,000 total square feet it leases from Mr. Haney. TVA sublets approximately 90,000 square feet to Blue Cross-Blue Shield of Tennessee (BCBS), but -- according to current and former FSD staff -- the sublease does not cover TVA's costs under the primary lease.82 Even with the sublease, more than 40,000 square feet of space in this building rented by TVA generally has remained unoccupied. Moreover, BCBS recently gave TVA notice that it plans to terminate its sublease entirely when the lease expires next year, leaving TVA with the burden of 90,000 additional square feet of unused space in this building.83 2. Mr. Sasser's Efforts to Assist the TVA Deal on a Contingent Fee Basis: As noted earlier, Mr. Haney retained the services of Mr. Sasser in January 1995, immediately upon Mr. Sasser leaving office as a United States Senator. One of the early projects on which Mr. Sasser began to assist Mr. Haney even prior to the Portals -- was his TVA lease extensions and the related Chattanooga bond issues.84 In his March 1995 financial disclosure form (filed for nomination vetting purposes), Mr. Sasser disclosed an unidentified contingent fee arrangement with a client, which -- as it turned out -- involved two distinct fee agreements with Mr. Haney, according to State Department notes taken at the time by legal counsel. See Appendix X. The first contingent fee agreement related to one or more of the TVA lease extensions. As Mr. Sasser testified before the Subcommittee, Mr. Haney had promised him that, "if we get this lease done, if I do well, you'll do well." Appendix C, at 288; see also Appendix C, at 245 ("we can get these leases done, you know, I'll make it worth your while"). Mr. Sasser also admitted that he performed some services for Mr. Haney relating to the TVA leases, and in particular, the Chestnut Street Towers lease. Appendix C, at 242. Mr. Sasser testified that he called TVA Chairman Crowell, his former chief of staff, and told him that, as I recall it, that Mr. Haney had five leases with the 81 82 83 84 At the formal Portals closing in March 1996, Confederation Life accepted cash instead of the bonds as consideration for the sale of its partnership interests to Mr. Haney. Prior to 1996, BCBS sublet only 46,000 square feet, leaving the bulk of the TVAleased space completely unoccupied. Although TVA agreed to a firm 10-year lease with Mr. Haney, it was able to secure only an additional three-year lease from its primary subtenant, BCBS, during negotiations in 1996. TVA documents and interviews confirm that FSD staff originally wanted to make the TVA lease with Mr. Haney co-terminus with the BCBS sublease, such that a decision by BCBS to vacate the building would give TVA the right to cancel the primary lease with Mr. Haney. See Appendix J, at 2. This sensible approach, however, was not incorporated into the lease extension ultimately signed by TVA, presumably because it would have had a similar effect on Mr. Haney's refinancing plans as the original six-month termination provision had. In fact, there is evidence that in late 1994, while Mr. Sasser was still a Senator, he began assisting Mr. Haney with respect to getting the necessary approvals from required local authorities with respect to the Chattanooga bonds discussed above. See Appendix C, at 28. Appendix C, at 243. Mr. Sasser added that the reason he called Mr. Crowell was because Mr. Haney "felt like that some of the contracting officers in the lower part of TVA would not give him a fair hearing." Appendix C, at 243. As noted earlier, it appears that Mr. Haney's and Mr. Sasser's efforts to elevate the matter within TVA apparently worked." The second disclosed contingency fee agreement between Mr. Sasser and Mr. Haney involved the related re-classification of the Chattanooga bonds -- specifically, gaining the tax authorities' assent to tax-exempt treatment for any re-issuing of the bonds. As Mr. Sasser testified, Mr. Haney told him that, "if we get some IRS bonds renegotiated, made tax exempt, he said, 'You'll do well."" Appendix C, at 261. After Mr. Sasser's disclosure of these agreements to the State Department, the Department's Office of Legal Advisor began asking questions about their details. Mr. Lake, who was serving as Mr. Sasser's ethics counsel at the time and was dealing directly with the State Department, asked Mr. Sasser to explain the terms of these contingency fees, but quickly realized that they lacked the necessary specificity for disclosure purposes. According to notes taken by officials in the State Department's Office of Legal Advisor, Mr. Lake informed the Department that one of the two agreements was "not likely to be resolved for a long time" because it "requires action by [a] government agency," and thus Mr. Sasser was voluntarily relinquishing his rights to that money. Appendix X. However, with respect to the other contingency, Mr. Lake told the Department that Mr. Sasser would provide a set formula for disclosure purposes. Appendix X. Several weeks later, Mr. Lake again contacted the State Department, but this time advising the Department that, because the likelihood of either contingency materializing was so remote, Mr. Sasser was going to relinquish his rights to both of them. Appendix X. In an interview with Committee staff, Mr. Lake confirmed the essence of these notes, as did Mr. Sasser's current counsel, who -- after speaking with Mr. Sasser -- informed Committee staff that Mr. Sasser indeed had two contingency arrangements with Mr. Haney at one time, but that Mr. Sasser gave up or liquidated his interests in those fees prior to his confirmation hearings. However, in his testimony before the Subcommittee, Mr. Sasser recalled these events in a markedly different fashion. Mr. Sasser stated that he never had any contingency fee agreements with Mr. Haney with respect to either the TVA leases or the related bond matters. Appendix C, at 245. Instead, his recollection was that Mr. Lake advised him that, because of the lack of details such as timing and amount, these arrangements were not "valid," and were not truly contingent fee agreements. Appendix C, at 245, 260-261, 288. Rather, they were mere "incentives" or "puffery" on Mr. Haney's part. Appendix C, at 245, 288. Mr. Lake, however, made clear in two separate interviews with Committee staff that he advised Mr. Sasser that the arrangements lacked the necessary details for disclosure purposes, which would not necessarily invalidate them as binding contracts." Indeed, the subsequent steps taken by Mr. Lake, along with his and Mr. Sasser's 85 Chairman Crowell told the TVA Inspector General's Office, in an investigative interview, that he did not recall any specific conversation with Mr. Sasser about Mr. Haney's lease extensions, but that -- because they speak often about many issues -- they may have spoken about this particular issue. $6 87 In that same conversation, Mr. Sasser's counsel represented to Committee staff that his client had an arrangement with Mr. Haney under which he would receive a percentage of the value of the extended TVA leases, although no specific percentage was discussed between Mr. Sasser and Mr. Haney. Mr. Sasser's counsel also stated that his client's agreement with Mr. Haney was not clear as to whether the contingency ran to each lease individually, or would be paid only upon the successful completion of all five Haney leases with TVA. At another point in his testimony, Mr. Sasser appears to acknowledge as much, stating that he sought to memorialize in writing the $1 million oral contingency agreement because of Mr. Lake's prior advice regarding disclosure requirements, and not because an oral arrangement might be unenforceable. See Appendix C, at 269. repeated representations to the State Department in 1995 and 1996, firmly suggest the existence of contingency agreements that were relinquished, rather than the absence of any agreements ab initio. See Appendix X; Appendix A, at 249-250. Because Mr. Sasser had given up his rights to any contingent fees, the State Department removed any reference to them from Mr. Sasser's disclosure form prior to sending the amended version to the Senate Foreign Relations Committee in early October 1995. And in Mr. Sasser's amended Senate questionnaire form filed on October 10, 1995, Mr. Sasser does not mention these earlier contingencies or his direct efforts to assist Mr. Haney in securing certain TVA leases, despite the questionnaire's focus on lobbying activity. See Appendix C, at 121-123. That amended filing, in relevant part, states: On behalf of the Franklin L. Haney Company, I advised the company relative Appendix C, at 123 (emphasis added). Notably, Mr. Sasser failed to mention that he personally intervened with TVA Chairman Crowell to ensure that Mr. Haney's extension proposal was given upper-level consideration. One month later, in November 1995, TVA agreed to extend the pivotal Chestnut Street Towers lease for a firm 10-year period -- an agreement that, at that time, would have been instrumental to the successful financing of the Portals (for the reasons discussed above). In roughly the same time period, Mr. Sasser and Mr. Haney reached an oral understanding that, if the Portals transaction ultimately closed, Mr. Sasser would receive a $1 million success fee for his efforts. As noted earlier, those efforts -- as set forth in the written agreement dated effective January 1, 1996, and actually entered into on or about January 26, 1996-- included not only Mr. Sasser's assistance with respect to the Portals project, but also with respect to "property located in the City of Chattanooga, Tennessee, to be leased to the Tennessee Valley Authority" (Appendix C, at 130) -- that is, the Chestnut Street Towers." Thus, despite his earlier representations to the State Department that he had given up any contingent fee interest in TVA lease extensions, it appears that Mr. Sasser may have received some portion of the $1 million fee for his successful efforts on the Chestnut Street Towers lease extension. B. Haney's Efforts to Secure the Refinancing of the Ronald Reagan Building As discussed above, one of the projects on which Mr. Haney had sought the assistance of Mr. Knight's law firm was his proposal to refinance the Ronald Reagan Building, a GSA-owned property financed by a loan from the Federal Financing Bank (FFB). In the early Spring of 1996, Mr. Haney, with the assistance of Mr. Knight and Mr. Trapasso, submitted an unsolicited proposal to GSA, representing that Mr. Haney could finance the project for less money than the FFB, saving GSA substantial sums in interest payments. Beginning in April 1996, there was a series of meetings between Mr. Haney and his representatives and officials at GSA and the Treasury Department to discuss this proposal. According to the testimony of Mr. Trapasso, at some point in mid- to late1996, there was a sense on Mr. Haney's team that significant progress was being made in gaining the agencies' acceptance of Mr. Haney's proposal. Appendix B, at 554-555; Appendix C, at 300301, 319, 323-324. At approximately the same time, Mr. Haney had a conversation with Mr. Trapasso about how the firm needed to start giving some thought as to the manner in which it wanted to be compensated on the Reagan project, if -- as it appeared at the time to Mr. Haney -- the deal turned out successfully. Appendix B, at 554; Appendix C, at 300, 319. 88 Mr. Mancuso, who drafted this agreement, testified that the contract recital dealing with a TVA lease in Chattanooga was set forth because he was aware, through Mr. Haney, that Mr. Sasser was assisting him on the Chestnut Street Towers lease extension, and he wanted to make sure that Mr. Sasser would not seek additional compensation for his successful services on that particular matter. Appendix B, at 231-232. While the deal never did reach fruition, the testimony of Mr. Trapasso is clear that Mr. Haney offered to pay, essentially, a success or contingency fee for the firm's successful efforts on the Reagan Building project. Mr. Trapasso also made clear that, had the refinancing proposal been accepted by GSA, it would have resulted in some type of lease or contract between Mr. Haney and the government. Appendix B, at 575. This fact is confirmed by a Committee interview with GSA staff, who confirmed that GSA informed Mr. Haney that any refinancing deal would have to be competitively bid under standard contracting procedures, and that GSA could not just accept his unsolicited proposal." Although Mr. Haney never actually paid the firm a success fee (since the deal never closed), this episode clearly reveals that Mr. Haney was willing to pay Mr. Knight a contingency fee on a Federal contract, and thus casts considerable doubt on the credibility of Mr. Haney's Portals-related denials. C. Potential Civil and Criminal Violations Committed by Haney and Sasser The oral contingency agreement between Mr. Haney and Mr. Sasser with respect to the extension of Mr. Haney's TVA leases appears to violate the statutory prohibition on contingent fees on Federal contracts regardless of whether Mr. Sasser ever received payment on this contingency.90 First, TVA leases -- as Federal contracts -- would appear to be governed by this particular section. Even if they are not, however, the TVA Inspector General's Office has confirmed to Committee staff that TVA requires a similar certification requirement on all of its leases. Second, the testimony by Mr. Sasser that Mr. Haney told him they would both "do well" if -- and only if TVA extended one or more of these leases clearly suggests a contingent fee incentive for Mr. Sasser to help Mr. Haney obtain those extensions. The satisfaction of these basic statutory elements -- coupled with the close personal and political association between Mr. Sasser and TVA Chairman Crowell, and Mr. Sasser's admission that he asked Mr. Crowell to have somebody at a higher level within TVA look at Mr. Haney's proposals due to opposition among TVA's leasing staff -- clearly warrants further investigation by TVA and/or the Department of Justice, as to whether violations of law or regulation were committed 89 90 was Mr. Haney's defense -- that, even if Mr. Trapasso's testimony were true, The statute's plain language does not require actual payment to the representative, only an agreement to pay, as the certification signed by the contractor states that no one has been retained or employed on a contingency basis. Such a reading also makes sense from a practical standpoint -- if an attorney or lobbyist believes he will get a contingency fee upon success, he or she will have the same motive to use corrupt or improper means to achieve that end, regardless of whether the lobbyist ultimately is paid. That said, for the reasons discussed above, a plausible argument could be made that Mr. Sasser did, in fact, receive compensation as a result of this contingency materializing -- part of the $1 million fee. 6 |