Mr. LESSER. That is right. Mr. MALAT. Yes, that could have happened. Mr. ADLERMAN. At that time, Mr. Daniels called you to Washington? Mr. LESSER. That is right. Mr. ADLERMAN. And he tried to get one of you to go ahead with the building? Mr. LESSER. The building was going ahead. The building had not stopped. Mr. ADLERMAN. I mean to go ahead with the project. Mr. LESSER. Right. He didn't want anything bad that would hurt the FHA, Barrington Plaza, or, you know, for the good of the Government. Mr. ADLERMAN. And he offered you inducements at that time, did he not, or you demanded inducements? Mr. MALAT. That was not so. Mr. ADLERMAN. Let me read the letter that you attach to your statement. The office will be willing to waive the commitment requirement of a cash deposit of $250,000. This means that you would not have to put up $250,000. You could have used that money to buy out Deane, is that right? Mr. LESSER. No. Mr. ADLERMAN. It says that is required at the time of the final endorsement. Mr. MALAT. We were still 2 years removed from final endorsement. Mr. ADLERMAN. Then it says: Provided we receive from you a personal indemnity agreement or letter of intent satisfactory to this office. Is that correct? You wanted to unfreeze that $250,000 that you had to have in cash. That is the point. Mr. LESSER. FHA said various things, as you heard the Commissioner the other day when he was on the stand. Mr. ADLERMAN. Did you want to put your hands on that cash and use it? Mr. LESSER. There is no cash. We didn't want to put up $250,000. Mr. ADLERMAN. You had a $250,000 deposit. Mr. LESSER. No, we didn't. Mr. MALAT. We didn't. Mr. LESSER. We didn't have a cash deposit. They wanted us to put up a cash deposit. Mr. ADLERMAN. Wouldn't that be a requirement of the mortgage commitment? Mr. LESSER. No, not until you are finished. The $250,000 requirement was after you finish the deal. The date of this letter it is still under construction on this date. Mr. ADLERMAN. At the end of this deal, you would have to have $250,000 in cash up. Mr. LESSER. That is right. There is a letter that says "or equivalent," or something else. There is a letter on that. Mr. ADLERMAN. You didn't want to have $250,000 frozen that way, did you? Mr. LESSER. We wanted not to put up cash of $250,000. Mr. ADLERMAN. You would rather have had a note or a letter of intent saying, "We will make this good"? Mr. MALAT. That is right. Mr. ADLERMAN. Did you know that this was the usual requirement in almost every FHA proceeding, that a cash deposit be put up to cover the operating expenses for the building if FĤA felt it might be in trouble for the startup expenses? Mr. MALAT. Mr. Adlerman, at that point in time that was not an unusual practice with FHA projects. Mr. ADLERMAN. Did you know that when your application was being considered the local office in Los Angeles was objecting to the fact that you only had $250,000 set up that way? Mr. MALAT. Mr. Adlerman, I know of my own knowledge that that was not a customary practice, and we were rather chagrined when even the $250,000 requirement was first broached and imposed. We had no choice. It was a condition of the commitment. But it was the first time that I had ever heard of such a requirement by FHA. Mr. ADLERMAN. But this was an inducement to you to go ahead with the sale to buy out Deane, is that right? Mr. LESSER. It was not an inducement. I didn't want to buy Deane. I wanted to sell. But we were stuck. We were on the construction loan. We were indebted for a lot of things. Deane had no money. What could we do? Mr. ADLERMAN. I think you said that before. But you had certain conditions that you wanted them to fulfill. Let me go to the second one. Mr. LESSER. I wanted to upgrade the building so it could rent. I didn't want to have a building that couldn't rent. Mr. MALAT. Mr. Adlerman, this was a business Mr. ADLERMAN. Did you also want an assurance from FHA that they would increase the loan amount to cover what you called increased cost of required changes and certain other changes of material benefit to the Commission. Did you want this to attach to a letter advising the Security National Bank that FHA was going to consider raising this loan? Mr. MALAT. Mr. Adlerman, on May 31 we received a copy of such a letter addressed to Mr. Fresneda, and that letter, I believe, even predated the meeting that Mr. Daniels and Mr. Lesser had in Washington. We had already approached FHA and advised them that we would like to look to them for an increase in the mortgage to cover costs that had been incurred that had not originally been contemplated, brought about by code changes and by other physical conditions, and brought about by proposed betterments to the project, with which FHA agreed and felt were highly desirable. So we had already had an assurance from FHA that they would look favorably upon this. Mr. ADLERMAN. Did you have assurance in writing? Mr. MALAT. The letter of May Mr. ADLERMAN. No; I mean before the sale and before your meeting with Daniels. Did you have an assurance in writing? Mr. LESSER. My meeting with Daniels was in July. This letter is dated May 31. Mr. ADLERMAN. What was that? Mr. LESSER. This letter of May 31, I believe, from Norman Lyon, Director in Los Angeles, was before my meeting with Mr. Lyons in Washington. They were already working on the changes on the kitchens. Mr. ADLERMAN. Ďid you have any assurance that they would give you an increase before you consented to buy out Deane? Mr. LESSER. We have this letter of May 31. Mr. ADLERMAN. That letter says they would reanalyze the project. They didn't give you any assurance that they would increase the loan. Mr. LESSER. If you read the letter carefully Mr. MALAT. That is all we ever had, Mr. Adlerman. We relied on FHA's good faith. We met with them in good faith. Mr. ADLERMAN. Did you ask them also, as a further condition, that they consider a request for forbearance on the mortgage obligation at that time? Mr. LESSER. I discussed it with Mr. Daniels, what happens when the building is completed, and if it doesn't rent up right away, and he wrote paragraph 5 of the letter of July 7. Mr. ADLERMAN. Did you have anybody intercede for you with FHA at that time? Mr. LESSER. I did not. Mr. ADLERMAN. Did you ever hire anybody for that purpose? Mr. LESSER. I did not. Mr. ADLERMAN. Did you hire anybody to represent you with Government matters? Mr. LESSER. I have Mr. Al Rothenberg who makes appointments for us with zoning. At that time he wasn't working for us. But he has done some work for us recently. Mr. ADLERMAN. You did have an agreement which was dated June 29, 1960, in which you asked the Federal Housing Commissioner as an inducement to endorse the deed of trust that the undersigned agrees that the final endorsement of the mortgage insurance with funds in the amount of $250,000 will be established and maintained for the purpose of meeting contingencies which may arise as a result of the betterments. You did have an agreement dated June 29, 1960, for that purpose? Mr. MALAT. Yes. Mr. LESSER. The extras we put into the building, the things we did to upgrade the building, were only for the good of the project and had to be done. Without carpets and drapes, without a dishwasher, you couldn't rent these apartments. Mr. ADLERMAN. Let me continue my question for a moment. Did you have Mr. Rothenberg intercede at all or come to Washington to meet people regarding the sale of this property? Or on the arrangements with Mr. Daniels on this property? Mr. LESSER. Mr. Rothenberg made a phone call for me for an appointment so I could meet Mr. Daniels. He didn't come to Washington. Mr. ADLERMAN. Did he have any friends in the FHA at that time? Mr. LESSER. I don't know. You are talking about the sale? You are talking now of the time when we sold the property? Mr. ADLERMAN. That is right. Mr. LESSER. He only worked for us recently. I don't know exactly, but he made a phone call for an appointment at the time of the sale, when we were talking of the sale, but not during the time we were building the property or completing the property. Mr. ADLERMAN. When did you first meet him? Mr. LESSER. I have known Mr. Rothenberg for quite a few years. Mr. ADLERMAN. When did he first work for you? Mr. MALAT. I believe it was July of 1963. Mr. ADLERMAN. When was that? Mr. MALAT. I believe July of 1963. Mr. ADLERMAN. Did he ever get any fees from you before that date? Mr. LESSER. I don't know. Mr. ADLERMAN. Did he ever do anything for you before that date? Mr. LESSER. He got us meetings for zoning of land in California, for drainage, for sewage, all kinds of things. Mr. ADLERMAN. I am talking about interceding with anybody in Washington, with the FHA. Mr. LESSER. No. He made that phone call for my appointment. You mentioned before that you had an investment of money in the Barrington Plaza, and I think you mentioned $1,700,000. Mr. MALAT. There were different amounts. There was an amount related to the date of the initial closing of some $252,000. There was a date prior to the final endorsement in April of $2,240,000, and on final endorsement a portion of that was recovered. Then there was our aggregate investment at the time we sold the project of some $1,300,000 or so. Mr. ADLERMAN. You had a cash investment of $252,000; is that right? Mr. MALAT. That is correct. Mr. ADLERMAN. And you had a half interest in the property with Deane at that time? Mr. LESSER. I believe we had either 40 percent or 35. I don't think it was a half interest. Mr. ADLERMAN. Let's say 40- or 35-percent interest. I think you told us that you paid about $1 million for that property? Mr. MALAT. It was a figure closer to $1,100,000. I will get the precise cost. We will send that to you. (The information referred to follows:) LOUIS LESSER ENTERPRISES, INC., Beverly Hills, Calif., November 3, 1966. SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS, Washington, D.C. (Attention of Donald F. O'Donnell, Chief Counsel.) GENTLEMEN: In accordance with your request to Mr. William Malat, we are enclosing a schedule of the advances made to Barrington Plaza during the time that we were the owners. Should you require any additional information, please do not hesitate to contact me. Very truly yours, W. LEE CHESTER, Controller. |