US EX REL. ERVIN
AND ASSOCIATES, INC. V THE HAMILTON SECURITIES GROUP, INC.
20, 1996 Hearing
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.
1, 1996 hearing
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.
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. 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."
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
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
decide to reconvene for a status hearing on August 19th,
which is past the 60 day time period under the statute.
19, 1996 Hearing
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.
19, 1996 Hearing
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.
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."
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.
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.
20, 1997 Hearing
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….".
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 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 9th. 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
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,"
10, 1997 Hearing
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.
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? 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.
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
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. 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."
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.
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. 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
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.
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." 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.
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
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.
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.
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
agree to meet again on March 10.
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, 1998 Hearing [11:00 AM the day the FBI takes over Hamilton
Offices and the day before the Auction of Hamilton's furniture
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. Alexis says that because of this, "we
haven't seen any of those documents that allow us to conduct an
says he needs at least 120 days.
They are going to be meeting with the special master.
asks how the special master is working out. 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
agree to meet again on July 10.
Alexis wants to make sure that the matter remains sealed.
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. 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. Alexis says he will make sure someone is there.
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.
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."
10, 1998 Hearing
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.
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.
19, 1998 Hearing
Alexis, Dan Hawke and Wayne Travell are in attendance. Hamilton believes that Dan Hawke makes many
misrepresentations to the court, such as: