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SUMMARIES OF HEARING TRANSCRIPTS

US EX REL. ERVIN AND ASSOCIATES, INC. V THE HAMILTON SECURITIES GROUP, INC.

CA 96-1258

June 20, 1996 Hearing

Mark Nagle (for the US, Civil Division), Daniel Hawke (Ervin's attorney) and Wayne Travell (Ervin's attorney, now at Venable, Baetjer & Civiletti) attend the hearing. The main issue is whether the relator [Ervin] has provided "all" the significant evidence supporting the claim to the DOJ as required by statute. Travell tells the judge that Ervin has offered to deliver all of the evidence but Nagle has been out of town/busy. Travell says there are "several" thousands of pages of evidence. The judge is concerned that Nagle will be overwhelmed with too much and requests that Travell mark the really significant pieces of evidence. It is anticipated at this hearing that the decision whether to intervene will be made within the 60 day statutory period.

July 1, 1996 hearing

Barbara Van Gelder (for the US, Civil Division) appears in place of Nagle, saying that they are a "tag team" and Nagle is appearing in another court. They determine that Travell has delivered the documents to DOJ and made some sort of presentation. Van Gelder says, "Your Honor, the matters that are before this Court are very strong, perhaps criminal, allegations that there has been collusion, bidrigging and kickbacks." The judge says "Fraud." Van Gelder replies, "Absolute fraud."   She says this is the first time they had heard anything about these allegations. "I liken this period as if we are going right to the grand jury. We are going to give a copy of this complaint to the Criminal Division. We are giving a copy to the HUD IG's office. We will have HUD IG investigators do some rapid interviews of unrelated parties who may or may not have information. So we can determine in this next 60 days…" The judge says he wants to try to get the case taken care of in less than 60 days.

Van Gelder says this is a multistate investigation. They have a list of more than 12 people who have to be interviewed, supposedly some of them people who were in the room.[1] She says "These would be the people who could -- what they have provided are very strong allegations with no smoking gun. There is absolutely -- there are people they say are in the room who should know. We are going to have to find them, we are going to have to interview them, we are going to have to interview the people they spoke to." The judge asks how many are involved and Van Gelder replies, "I stopped at 12, I believe. I said that's enough right here."

The judge says he doesn't want this lying around his docket. Van Gelder says, "Your honor, this one will not be. This one is either going to b criminal or we're out of here. I mean, it's going to be one or the other… in this particular case, we're either going to have to come in and stay the case pending a criminal investigation or -- " Then, the judge says, "I don't stay cases. I dismiss them without prejudice with leave to reopen upon the conclusion of whatever event, and this case would be a criminal prosecution."

They discuss whether Ervin has a problem with this as long as his rights are protected, and Travell, his counsel, says they do not, but they do believe there are serious wrongdoings in the case. The judge says, "From what you said in your Complaint, I guess that is right, and it ought to be prosecuted. If there is damages [sic] that the government is due or you are due on behalf of the US, ought to be paid [sic]. There is certainly a lot of money going on back and forth here."

They decide to reconvene for a status hearing on August 19^th, which is past the 60 day time period under the statute.

August 19, 1996 Hearing

Wayne Travell, Barbara Van Gelder and Judith Hetherton (Counsel for the HUD Inspector General) attend this hearing. Van Gelder says they need more time. Travell does not object. So the judge gives them 90 days more and says "No more extensions except for extraordinary good cause." Van Gelder says she believes they will be prepared, since they are "going forthwith with this, and we understand the mandate of the court."   The judge says "I will expect to hear from you by pleading then, and without objection." She agrees and he indicates he and Van Gelder are old friends.

December 19, 1996 Hearing

Stanley Sporkin holds this hearing, although it does not appear that Richey has died yet because they talk about him. Judge Sporkin says "I have to pose as Judge Richey to get you to come before me; is that what I've got to do?" Judge Sporkin says this is Judge Richey's case and Van Gelder replies "It is, Your Honor, and since the judge had some questions on the scope of the stay, according to his Clerk." And Judge Sporkin says "Yes, he doesn't want it open ended." She replies that she asks the Court to reschedule it. Generally, Van Gelder flirts with Sporkin.

The judge asks how the investigation is coming. She says they have about 12 people working on the case, 9 full time, and have interviewed over 125 witnesses and have over 30,000 documents accumulated. She says she thinks the information is good but "whether it goes to a criminal violation or contractual violation or administrative violation is going to result in whether or not we pass through all of that evidence." [She appears to have gotten that one backwards.] She can't give the judge a definitive date, she says. When asked for an estimate, she says "I can tell you that as far as the civil matter is concerned, the government will probably take the case. " Then, very curiously, she says "we will have to, based on the information we have that the relator didn't have, we're going to have to reorder the case, file an amended complaint, and that is still going to be dependent upon the information that the Criminal Division is bringing in."

The judge asks about whether Ervin recovers if there is a criminal case -- she says yes, they probably would follow up under a collateral estoppel. This presumably means with a civil case. The judge then comments that it doesn't matter to Ervin, then, and she says yes. The judge says he wants to have a status conference in six months. Van Gelder says she has already promised to check in with Judge Richey every 45 days, and they will continue to do that. Sporkin gives the government 90 days.

Sporkin then muses on how much money the relator can make. Travell says the relator gets 30% and Van Gelder corrects him and says it's 15% - 30%. They agree to reconvene on March 10, but we have no hearing transcript for that date.

May 20, 1997 Hearing

This hearing is before Judge Sporkin, and it appears that he has replaced Judge Richey permanently following Richey's death. Attending the hearing are Barbara Van Gelder, Dan Hawke, Bernard Oleniacz (in-house counsel at Ervin and Associates) and Judith Hetherton (her name is misspelled "Heatherton"). Van Gelder tells the judge she will take questions at the bench because the relator's counsel is there. She says the government is also a plaintiff in a case before Judge Bryant in which the US is a defendant. The judge questions whether this case should be transferred to Judge Bryant and Van Gelder says she has personal and legal reasons she would rather Sporkin have both cases. They flirt over her wanting to appear before him. She says, "I believe that we can't have one case consolidated is [sic] because what would happen is that one judge would have total knowledge of the case, and the problem is that in the other case, we are the defendant, and so with the United States being the plaintiff and the United States being the Defendant….".

The judge says "Is there linkage?" and she responds, "Oh, there is incredible linkage, yes. So that is the problem." The judge brings Ervin's counsel, Hawke, into the discussion and is confused how the government can be plaintiff and defendant, and he confuses the plaintiff and defendant. Van Gelder explains what a qui tam case is. She refers to Ervin and his counsel as "bounty hunters." She says that Hawke is "in essence, my co-counsel." She explains that the qui tam statute will not allow you to file against the government or anybody who is an SES[2] level or above. When she tries to explain what the Bivens case is, Judge Sporkin says he thinks she is going to need a continuance. She says they are asking until September 9^th. She says that they also have a stay before Judge Bryant so that the criminal people can flesh out some of the matters. She says she has to consider not only their vacations but also "our agents summer vacations." The relator and counsel have consented to the continuance.

Judge Sporkin once again mumbles about the $30 million qui tam case he heard about and says isn't 25% the top percentage that the relator gets, and Van Gelder says yes, 25%. He then calculates what 25% of thirty million is -- "7.5 million bucks," he says.

September 10, 1997 Hearing

Van Gelder, Travell and Hawke appear before Judge Sporkin. The judge asks whether we are ready to go ahead with this case. Van Gelder says no, she wants another 6 months, and has the consent of the relator and its counsel. The judge wants a report of progress.

Van Gelder reports that they are doing a "saturation" investigative effort. She says at the last hearing the judge asked if this was going to be an SEC type hearing [note: this discussion doesn't appear in the transcript for the last hearing]. She says the note sales are not regulated by the SEC. The judge poses the question what are they if not securities?[3] Van Gelder says "They're actual sales as opposed to any sort of securities. They're just selling the actual notes, like giving you a second mortgage or something." Sporkin suggests that a note is a security and Van Gelder says she believes it is not. Van Gelder says they talked to the SEC people and the SEC said there is no retained interest in the agency so it isn't a security. She says the SEC doesn't believe this is regulated by securities law.

Judge Sporkin obviously understands better than Van Gelder. He says no, no, no, you first have to determine whether you have a security -- some securities are exempt. Some securities don't have to register under the 1933 Act or 1934 Act. But there are no exemptions from 10(b (5) [the securities antifraud statute] if you have a security. [Note: Sporkin is correct on is correct on this one.] Van Gelder says the SEC says these are not securities, although there is "one series" that might be,[4] but DOJ is using SEC in an advisory capacity anyway. Sporkin says he's still trying to figure out why the SEC would say there is no security here. [5]   She remarks, "they said it's an asset sale." She asks the judge if he thinks the RTC notes were securities, because this is what they are modeled on. He says "yes."

Van Gelder says the easy question for today is that the qui tam suggests problems with three or four sales, but she believes they need to look at all 12 sales. Sporkin is still thinking about the securities law issue. "What was the alleged scheme here?" he asks.

Travell tells Sporkin that the qui tam alleges that HUD put together a bulk sale of loans and then gave inside information to Wall Street concerns and provided false information publicly with regard to the quality of the notes in the pool.[6] Sporkin asks if the issuer of securities isn't supposed to give the bidders dislcosure. He says "if I'm an issuer of DuPont stock, and I call in Merrill Lynch as my underwriter, I've got to tell them everything." Travell's response is that there is no underwriter, it's a direct sale. Sporkin misunderstands and says oh, then HUD isn't the originator of the notes. Van Gelder says HUD is using Hamilton Securities as the note salesperson, the financial advisor.[7]

Van Gelder then tells the judge that what they need to look at is not whether there are securities and disclosure, but rather whether or not the bids were rigged, because they are sealed bids. She says, "you know, inside information." Sporkin says, "Oh, so people come in and bid for the notes?" She says, "Some people got longer invitations than others." The judge asks, "And then in the invitation to bid some people were told information they shouldn't have, is that correct?"   Travell says that is correct. He says in a securities law context it would be insider trading.

Sporkin is intrigued and says that would be a dynamite insider trading case. What do they do then, sell the notes? Van Gelder says "well, they're actually in the process of selling them now." Wayne then tells the judge the loan sales are almost complete and "our information is that although these are generally available, made available to the public for anyone to bid on, there have only been three successful bidders." [8] Van Gelder says "It's an interesting thing that what I think he's trying to say is you throw out a net in the sea, and why do the only three people are the only people who respond?" Sporkin asks why. [The judge] says "it's almost like a bankruptcy with they buy-in of a mortgage deal. The only person that ever buys in is the person who holds the mortgage." Van Gelder then says the question is whether that is collusion or bid rigging. That's what the investigation is about.

They tell Sporkin that there are effectively only three successful bidders or bid groups. Sporkin comments that HUD has to take the high bid. They both say "no." Van Gelder says "this is part of the issues [sic]." The judge asks if there is any allegation of collusion with government employees. Travell says there is. Van Gelder adds that that's part of the Bivens case.

Sporkin asks again if this case shouldn't go to Judge Bryant. Van Gelder says they can't do that because DOJ is representing HUD against Ervin in that case. The judge then gives them six months more.

Van Gelder then tells the judge that she is trying to find out what kind of animal they are dealing with, and it's kind of a hybrid, and the next question is the scope. Sporkin says he still thinks the SEC would be helpful. Sporkin pushes the issue and refers to a housing case where the definition of security was cut back quite a bit. Van Gelder says she would prefer to use SEC in an advisory capacity. "Because we might be dealing with conflicts of interest, public corruption matters and it would be better to ----." He says she can use the SEC any way she wants. He says he just knows they know this area pretty well.

Sporkin then describes a case -- he thinks "it was a metropolitan building operation. Franklin, Was it Franklin?" He said it involved the sale of some sort of government instruments that the SEC doesn't usually get involved with, but it did here. There was a limit of 5% that any given purchaser could purchase, and one broker bought 5% in its name and 5% in a customer's name, then put the securities in the customer's account and sold the securities to itself. So the SEC got involved instead of the Feds or the Controller's Office.

They agree to meet again on March 10.

There is back and forth between Sporkin and Van Gelder where he says how great government service is and that in government service, you get interesting cases like this every day. Van Gelder says "This one case is going to keep me in the government for 20 years, I think." [9]

March 9, 1998 Hearing [11:00 AM the day the FBI takes over Hamilton Offices and the day before the Auction of Hamilton's furniture and equipment]

Tony Alexis and Dan Hawke appear at this hearing. Judge Sporkin asks if this has to do with the subpoena. Alexis says it's the same matter but in a different fashion. This is the qui tam case and the US had to move to enforce the subpoena.[10] Alexis says that because of this, "we haven't seen any of those documents that allow us to conduct an evaluation." Alexis says he needs at least 120 days. They are going to be meeting with the special master.

Sporkin asks how the special master is working out.[11] Alexis says he understands well -- he thinks they have worked all weekend and have a meeting that day with the Special Master. He understands the government is happy. Then Sporkin says "I forgot. They have a lot of extra space because they just came out of a big case. They did a billion dollar -- they were a billion dollar special master. I don't know if you remember that. It was the Prudential case. They gave away a billion dollars." Sporkin says it’s a good deal at $100 an hour. Alexis admits that it is a money loser for Storch & Brenner. Alexis says Mr. Goldman couldn't take it because he was busy and he didn't like the money.

They agree to meet again on July 10. Alexis wants to make sure that the matter remains sealed.

Sporkin says there is something else. Alexis says he is not involved in that. The judge says "It's the same case, isn't it? Well, I think they got to be in on it don't they? Well, somebody else is trying to get those records". They determine it's the Streuby Drumm case he is referring to. The judge thinks it is Drumm v Hamilton.[12] Alexis says that is someone else's case. Alexis asks if it is a FOIA case. Sporkin says no, it's litigation in Louisiana. Alexis indicates he has heard of that. Alexis says he thinks that is the one that is being handled by Main Justice. Sporkin says someone from Alexis's office ought to be there too. He asks what time. Sporkin says 2:30 that afternoon. They clarify that it is US v Drumm, not Drumm v Hamilton. Alexis is confused and says "and there is no one that's actually entered their appearance for the United States yet?" Tony says the problem is he is in training in Reston at 2:00.[13] Alexis says he will make sure someone is there.

Tony comments that Hamilton can't produce documents, since they don't have documents. Sporkin says if it is going to involve the Special Master, they [Drumm] will have to pay some of the costs. Hamilton doesn't have any money. Alexis indicates he understands.

Sporkin adds, "I'll tell you, I've seen complicated cases before. With all these parties, this is going to be complicated beyond belief." Alexis responds "I don't think it's going to ever get any easier. There's a ripple effect because of all the note sales, so it's only going to get harder as people start to use the note sales, effective note sales that defense is asked to pay back."

July 10, 1998 Hearing

Tony Alexis, Dan Hawke, Bernard Oleniacz and Judith Hetherton attend this hearing. Hamilton believes that in this hearing both Dan Hawke and counsel for the government make a misrepresentation to the judge: Tony Alexis tells Judge Sporkin, "Ms. Heatherton from HUD is, along with Dan Van Horn, and it's like pulling teeth, even with the special masters, in helping to try to get all the documents, and my understanding is they don't even have the documents to even begin the review. So HUD hasn't even begun the review of the documents.” Hetherton points out that they do have some documents, and then they tell the judge that what they don’t have is the electronic documents, and then, later, Hawke explains why the electronic documents are so important.

Alexis also reveals that Goldman is about to go public. He says “We are at a critical phase in terms of actually interviewing people. I don’t want to have the government’s infomatter [sic] on this matter at this particular time, because one of the defendants, Goldman Sachs, is about to go public. You know, the last thing we want to do is have some kind of negative impact on the stock.” Alexis asks for more time until November 13. The judge sets November 16 for the next hearing.

November 19, 1998 Hearing

Tony Alexis, Dan Hawke and Wayne Travell are in attendance. Hamilton believes that Dan Hawke makes many misrepresentations to the court, such as:

(1) Dan Hawke shows charts to the court that purport to show that BlackRock won no mortgages before it was a subcontractor to Hamilton and won lots of bids thereafter. “…BlackRock was a subcontractor to Hamilton, and before they became a subcontractor, they enjoyed no success in the auctions. After they became a subcontractor, they had teaming arrangements with Goldman Sachs, and with Ocwen.” He says they worked out of Hamilton’s offices and that Hamilton gave them information, which they shared with Ocwen and Goldman, that allowed them to win the bids. Hawke also represents that HUD has no knowledge that BlackRock was a subcontractor to Hamilton. He says “HUD knew that they [BlackRock] were buying. What HUD didn’t know was is that Blackrock was acting as a subcontractor to Hamilton. And they were working out of Hamilton’s offices while the auctions were being planned that Blackrock --- “When the judge asks who paid Blackrock, Hawke says “Hamilton” and adds “this is a classic insider trading case.” [14]

(2) Hawke uses an analogy that is questionable, to say the least. He says “Judge, the question in this case is whether when someone wins the lottery nine straight times, you have to ask whether they know something that nobody else knows.” He also represents that the “logjam” with documents at the Special Master’s is preventing the case from moving forward expeditiously. Judge Sporkin asks if they are blaming Storch and they say no, it’s all Hamilton’s fault. Some of the fault, they say, is because Hamilton is focusing on privilege and proprietary claims.

(3) Hawke represents that Fitts gave a false affidavit regarding Hamilton’s knowledge of the optimization error. He uses as proof the fax from Michael Brocks to Robert Robinson. “In that [WOM] auction, the winner was Goldman Sachs walked away [sic] with $164 million in mortgages that they should not have won. Hamilton knew it, and C. Austin Fitz[sic], the president, submitted an affidavit to you in which she said she didn’t know or that Hamilton Securities did not know of the error until a year after, in fact, they really did.”[15]

(4) Hawke indicates that they have reason to believe there are emails between Blackrock and Hamilton implicating them in a conspiracy and that these are the very documents that DOJ has been unable to obtain from the Special Master. Hawke gives the judge a copy of the Grace Huebscher email to Blackrock and explains that it is proof that Hamilton was conspiring with Blackrock.   When the judge hears the email contents, he says “Oh, boy.” Hawk continues, “Blackrock didn’t have a contract with HUD. It’s only relationship with HUD was as a bidder in the auctions. So the reason why the electronic files that the special master is reviewing and all the documents that the special master is looking at, we believe there is a treasure trove of these kinds of communications.”[16]

An indication of what “they are after” in the investigation is hinted at in Hawke’s response to Sporkin’s question “Has someone gone back to them, Goldman, to get the money [i.e., the $164 million from the West of the Mississippi ("WOM") sale that Goldman was awarded in error][17] back?” Hawke says, “Well, that’s what the qui tem action is for is to basically, -- is to – we believe that there were false claims presented in the bid documents, and we believe that this was – the reason why no one has gone back is because that was part of the scheme, that the people who were involved with Hamilton and on behalf of HUD were involved with covering that up.” The judge asks if Hamilton knew BlackRock was bidding, and Hawke says “absolutely” and the judge says “So in other words, are you suggesting there is a conspiracy here?” and Hawke says “Yes, Your Honor.”

January 29, 1999 Hearing
Tony Alexis (Assistant US Attorney in the Civil Division) and Judith Hetherton appear for the plaintiff and Daniel Hawke and Wayne Travell appear for the relator.

Alexis reports that the status is that the court has ruled on the PTE to enforce a subpoena and there is a protocol for turning over the hard copy and electronic documents. He says “in order for the US to access some of the information they actually have to get a contractor in order to copy this. It is fairly complicated procedure that is being utilized in order to copy it, and then afterwards the parties will go back and forth before the special master with regard to ascertaining which documents are going to be turned over and which ones have legitimate claims for privilege.” He says based on what Hetherton says, it will take about 90 days to figure out “where exactly our feet are in this particular matter because of the contractor’s concerns for being able to even copy the media, unwind it, and get it into a format that both parties can utilized.”

He requests a continuation of the seal for 90 days. Hawke says OK but he wants a conference in 60 days. The next hearing is scheduled for March 29.

March 29, 1999 Hearing
Anthony Alexis, Wayne Travell, Dan Hawke and Judith Hetherton attend the hearing. Sporkin begins “Is this one of these qui tams? … This is Hamilton Securities. I remember this. Where’s the government going? Do they know yet?” Alexis says no. “I like of know which direction I want to go in terms of who I want to speak to, but there’s well, obviously the documents, which Ms. Heatherton can speak to, which is before the special master. My understanding is he’s about to – in the process of ruling on the claims of privilege.” He tells the judge there is a draft ruling.

Alexis says “And then I heard that the plaintiff – not the plaintiff, but Hamilton filed a notice of appeal on the part of the – putting that all aside, they’ve also contracted – they, being HUD OIG – has contracted for some of the electronic [data] base which will take some time. Lastly, in terms of who we actually want to interview, we’ve approached some people, but we’ve come up against the proverbial stone wall, and there is no way that at this particular time I can evaluate until we a) have some documents and –… " The judge asks what kind of a stone wall and Alexis says “They are just not going to talk.” “What?" says Sporkin. “They’re not going to talk, based on advice of counsel, and we can’t give them immunity, because we may be giving the wrong person immunity. And if I sit them down for a civil –…" Alexis says he doesn’t want to put someone in a deposition and have the person invoke the fifth amendment.

The judge offers more time and asks Hawke if that’s OK. Hawke says yes, but he wants to continue the regular status meetings “because we are actively trying to provide information to the government to facilitate the investigation, but I really feel it’s important. I mean, the investigation has been pending for 33 months.”

Sporkin is like a father advising his son who is having problems. The judge says “These are not easy investigations. I don’t know whether you – nobody knows whether there is a case yet or not, but the more stone walling you get, the more you get – the curiouser and curiouser it becomes …”

When asked if everything is going smoothly, Hawke says “We believe everything is going smoothly. We are operating somewhat in the dark. I mean, because we are plaintiffs in other action against the government, we’ve had to be very careful in our communications with each other…”

Alexis asks for 60 days. They schedule a hearing the second day after Memorial Day.

June 2, 1999 Hearing
Tony Alexis and Wayne Travell attend the hearing.

The judge wants to recap what’s happened so far and says he knows that the defendant has filed a motion to unseal. He asks the clerk to get a copy of the motion.

Alexis says “It’s my understanding from talking to … Judith Hetherton, that Storch & Brenner, the Special Master, has asked for an investigation regarding the compliance of discovery by the defendant in that particular case because a particular backup tape or a particular piece of evidence that encompasses a several month, and in my case a very, very key period in my case is missing.[18] They stated that it never existed and what they didn’t realize, there was prior counsel in the record who had made representations that it did exist and specifically what was on it, and gave snippets, etc. So, in response to that, the special Master has asked for an investigation.” Sporkin says the special master is great. Alexis says “Well, it’s my understanding that he felt a little duped at what happened. I mean, you have to get it actually from the agency counsel, who was more intimately involved.”

Tony tells a story about, it appears to me, Kathy Rock. His version is thus: “Hamilton Securities gets a financial contract from HUD in order to serve as their financial advisor….. A young lady goes to Hamilton to get a job, Hamilton says, ‘We can’t give you a job, but we can get you a job at HUD.’ They dress up her 171, then get her an interview at HUD. After she gets an interview at HUD, she gets the job, after HUD makes a possible waiver of a requirement that she have a CPA degree. Within that same period, and there’s a key period of time, she turns around and she is evaluating the bid as to whether Hamilton, which helped her get the job at HUD, should get the financial service contract, what’s known as the crosscutter. She’s not cooperating. She’s in Denver. I want to serve a CID, a Civil Investigative Demand, to actually compel her deposition and get her testimony. Hamilton, to the extent that they would have any admissions or would shed light on how she was actually placed there and how they got this contract – and this is key to us – that’s the particular backup tapes that are missing, that we no longer have access to, to the key period, 1995 to May of 1996, in which a decision was made to actually let this particular contract. And the contract was specifically awarded to Hamilton. And you should know that Hamilton actually wrote part of the contract. And then they bid on something they actually wrote. And we’re trying to find out whether she provided inside information to Hamilton.”

The judge says he thought the case was about insider trading. Alexis says it is, but first we have to figure out “how Hamilton was there, who placed Hamilton there and how was Hamilton placed there, and what were their motives.”

Alexis says “it is a big case, but I can’t get anyone into play until I have someone. And I think my someone is Ms. Rock. The judge asks whether the right people at the agency are in on it. It’s gone on an awfully long time. Someone ought to be able to focus on what the big part of the case is. “And I’m only giving back to you what’s been told to me over a long period of time.”

Travell says he thinks this is a small part of the case.

Travell summarizes his case: “Our allegations are that Hamilton was in cooperation with the Wall Street merchant banks – and was able to tip them with inside information which allowed huge blocks of these mortgage notes to be sold at a fraction of their value.” [19] “Some of the bids, which are hundreds of millions of dollars, are won by – I believe there’s one bid that was a $60,000 margin to the winner. So the margins are extremely close in terms of bidding on these huge blocks of information. In several cases, the real winner was not awarded the contract, and we know it because Hamilton’s admitted that much. They actually awarded the contract to one of their favorite merchant banks, and not the real winner.” The judge asks if there was a quid pro quo. Travell says he believes there is. The judge says “You don’t’ know where it’s at, though?” Travel says “Well, that’s one of the things I think the investigation is trying to crack.” The judge replies “Well, I don’t even think they have touched the surface on that, thought. That’s the problem.”

The judge asks Travell what gives him this scenario. He says he got a tip – the man in the lobby. He sat there all day on the bid day and then came up and made the last winning bid. He says they have information that information was passed from inside so that he would know what the bid should be.[20] He says “… From what we’ve gathered, as I said earlier, one of the critical issues is to what extent that Hamilton was manipulating HUD and its employees, how they did that. Because Hamilton was able to get influence over the agency that no contractor should have. And that gave it the ability to dispose of, at one point, billions of dollars of Government assets.” The judge says “of course, what did they do with all of the money they made. They dissipated it, because there’s nothing left.”

Travell says Hamilton got $42 million and they don’t know where it went. There is one theory that the quid pro quo was about "cutting us in on future ventures that we may have."

The judge says this is dragging, and what they have to do is get together some very knowledgeable people. He suggests the SEC. He says they have to get some people who are knowledgeable in Wall Street and how these things work. He doubts whether the HUD OIG has those skills. He tells Alexis it concerns him they are following one small part of this and asking for more time. He says “you still haven’t gone out to start looking at this other stuff. Otherwise, you’ll be here for the next ten years.” He asks who is carrying this on – do you have somebody at Justice working on it? Tony says the “OIG from HUD is carrying it on. The Department of Justice antitrust section was involved, but, obviously, there is an antitrust angle and I’m not too sure that – I mean, it’s not really an antitrust case.” Sporkin asks again if these are securities and if the SEC can be involved.

Tony agrees to go over to the SEC enforcement section for help. The judge says “otherwise, you’re not going to get to the key of this case.” Sporkin gives him 90 days until September 8.

Sporkin asks Travell if Ervin is ready to go forward if the government declines. He asks to approach the bench and says that when the case was filed, Ervin was a thriving company. He says the government is retaliating, withholding money from Ervin and cut off all work. Usually they do $9 Million in a year, and this year they only did $250,000. As the case progresses, their ability to prosecute the case becomes more seriously compromised.

September 17, 1999 Hearing
Tony Alexis and Wayne Travell attend the hearing.

Alexis says “and in the meantime I’m making the private bar very happy. Goldman Sachs is represented by Paul Weiss and Blackrock is represented by Scad & Arps[21] in New York.” He says they have meetings to discuss the allegations with them.

Sporkin is particularly interested in knowing what law firms are involved. They tell him that Wayne Travell will be at Venable – that there is a merger effective January 1. He asks to know of any more that come in.[22]

Alexis says since the last hearing “we filed an amended complaint which we did as a matter of right. No answer has been filed. What we did in our amended complaint is we attempted to garner all of the information that we’ve obtained over the past three years which is consistent with the allegations we made in the original complaint."[23] Sporkin asks if this is the Egyptian case. Travell says no, it’s the HUD note sales. Tony says they are going to be interviewing purchasers. He needs another extension. The judge asks what progress they are making. Tony says “yes, Your Honor. I believe we’re at the end. I mean, I think that with the note sale people, it’s fish or cut bait time, and I should know something probably in the next three to four weeks where we’re going to go one way or the other.”

They agree to a status hearing on November 8, 1999. We have no more transcripts.

[1] Presumably, she is referring to the bid room during the opening of the bids for the Single Family #2 loan sale because this is the sale with respect to which Ervin alleges someone in the bid room called down to a representative of BlackRock to provide inside information about the bids, after which BlackRock submitted its bid. Hamilton has verified through the bid logs that this sequence of events did not occur.

[2] "SES" refers to Senior Executive Service. What Van Gelder is saying is that the Federal False Claims Act, under which Ervin has filed his case against Hamilton, precludes the relator from naming as a defendant a government employee whose position with the agency is at least an SES level. This would refer to Helen Dunlap, who was HUD's Deputy Assistant Secretary for Housing.   Van Gelder is saying that the reason Ervin filed the Bivens action against HUD and Helen Dunlap is that he could not name Dunlap in a qui tam case.

[3] It may be recalled that Stanley Sporkin had been the chief of enforcement at the Securities and Exchange Commission when William Casey served as SEC Commissioner. It is for this reason he may be considered an expert in securities law.

[4] Presumably, this reference is to the Partially Assisted sale, which was an "N-Series" type trust structure similar to the structure first employed by the RTC in its loan sales.

[5] This is a good question. If the SEC had wanted to get involved, it probably could find a security.

[6] This is a reference to Ervin's allegation that the bid disclosure documents labeled the loans "non-performing" when they were of better quality than loans that RTC sold as "nonperforming." The fact is that bidders had access to information on the loans that would have allowed them to conclude for themselves what the quality of the loans was.

[7] This statement is not quite right.   HUD is the direct seller of notes or, in one case, the issuer of a security backed by notes. Hamilton was not an underwriter, but merely an advisor. In the industry, a financial advisor is paid much less than an underwriter would be. One reason for this is that the financial advisor does not assume any risk of the sale price of the asset.

[8] It is not true that there had been only three successful bidders in the HUD loan sales. In fact, there were ten separate successful bidders for the first major loan sale, the "Southeast" sale in March, 1995.

[9] In fact, Van Gelder joins Wiley Rien & Fielding before the next hearing.

[10] He should know this because in the TRO case he said if Hamilton didn't like what was in the subpoena, it had to challenge that in an enforcement proceeding that the OIG would bring when it didn't provide what the OIG wanted.

[11] In a separate case brought by the HUD OIG to enforce the Hamilton subpoenas, Judge Sporkin had appointed Storch & Brenner as Special Discovery Master to hold all of Hamilton's documents pending decisions in the case as to what was required to be produced. Hamilton was at that time selling all of its furniture and equipment and closing its offices. A senior partner of Storch & Brenner, appointed as Co-Special Master with Larry Storch, was a former colleague of the judge when he served at the SEC.

[12] This is a case filed in Louisiana by a disgruntled borrower against HUD, but the plaintiff issued a subpoena for documents to Hamilton and, on finding out about the Hamilton case in US District Court for DC, actually entered that case for the purpose of obtaining documents that were being turned over to the Special Master.

[13] Reston is where the office of Lee Radek, head of the Public Integrity Section, is.

[14] The fact is that HUD attended weekly meetings also attended by BlackRock and that both HUD and its outside counsel, Dewey Ballantine, knew that BlackRock was a subcontractor and in fact HUD consented to it. Dewey Ballantine was inexperienced in transactions of this type and for that reason Randy Nardone at BlackRock took over drafting of the bid offering document. BlackRock advised HUD on a multifamily transaction that it did not bid on. It bid only on single family transactions. It maintained offices separate from Hamilton in Washington, and BlackRock personnel were not permitted on the trading floor where the SF deal was marketed.

[15] The affidavit was not false. Hamilton disclosed the whole "Manhattan" file, which included all emails in its computer system relating to the error and related matters, to HUD. Also, Hawke did not tell the judge that the second error resulted in Goldman LOSING more than $164 million in mortgages.

[16] He neglects to tell the judge that Hamilton produced this email to HUD as part of its response to the subpoenae. Also, surely, out of 120 interviews, the OIG interviewed Grace Huebscher about this email. Hamilton is not aware that either Grace Huebscher, who currently works at Fannie Mae, or Kevin McMahan, the leader of the Hamilton loan sales team whose resume still cites Hamilton's HUD contracting officer as a job reference, is under any criminal investigation.

[17] The error also resulted in Goldman NOT being awarded assets greatly exceeding that amount for which it was the high bidder. In other words, Goldman was a net loser as the result of the error.

[18] [to be provided]

[19] This is backwards – HUD got record high prices for the mortgages.

[20] As far as Hamilton has been able to determine, BlackRock was not the final bidder.

[21] It appears this should say "Skadden Arps," a well-known New York-based law firm that represents many Wall Street banks.

[22] This is probably because the judge is seeking employment -- he joins Weil Gotschal on retirement in January, 2000.

[23] Note that Alexis is speaking of the amended complaint as if the DC US Attorney's Office and Ervin prepared it together.   Recall that the government was at that time in the position of denying many of the allegations in the Qui Tam in its defense of the Bivens case.