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THE SWAT LIST: AUDITS, INVESTIGATIONS, INQUIRIES, LEAKS, CONFLICTS OF INTEREST, HARASSMENT AND SURVEILLANCE
They'll never suspect the old double framus.
—Howling Mad Murdock, "The A-Team"
 "Swat" is the term we use to refer to a multiple action/agency effort by government agencies, often with the participation and assistance of private "informants," individuals and companies, to profit from the destruction, asset seizure or black mail of the target. The purpose is to satisfy the goals of one or more private special interest groups and/ or governmental covert operations. We first learned how a Swat worked when Catherine Austin Fitts, founder of Hamilton, served as Assistant Secretary of Housing/Federal Housing Commissioner at the Department of Housing and Urban Development during the Bush Administration and watched senior government officials order companies destroyed in this manner. 

With the HUD loan sales, Hamilton was helping to reengineer and decentralize government to advantage taxpayers and communities as opposed to special interest groups. Because of the risks associated with recommending changes that would disadvantage powerful special interest groups, Hamilton was operated in a transparent fashion in the hopes that open disclosure would reduce the risks associated with any possible "swat" attack. As part of this plan to avert "swat" assaults, Hamilton carefully designed its operations to withstand close unethical scrutiny by those who might wish to involve Hamilton in scandal. 

  • Salaries were kept low, bonuses were paid with equity, all checks required multiple signatures, monthly financials were posted on the Hamilton network intranet.
  • All of Fitts's assets were kept within the United States and all personal financial records were disclosed to Hamilton's chief financial officer and managed by an accountant. 
  • Hamilton was audited by Big 6 accounting firms, had a Board of Directors and audit committee overseeing the Chief Financial Officer and also had special audits by government contracting firms and advice from counsel expert in government contracting to ensure a very high standard of performance that was known and understood widely by employees and entities doing business with Hamilton. 
  • Because of the viciousness with which the charge of "conflict of interest" was raised through carefully placed "rumors" and "leaks" heard by Hamilton contacts and HUD program staff, Hamilton made a determination not to engage in financial advisory work for private clients and not to develop its planned trading operation until it was free of its last HUD contract. 
Unfortunately, Hamilton did not anticipate the ferociousness with which HUD would attack and that such attack would involve HUD's destruction of its own internal financial controls and the use of its own contractors as a scapegoat, as a means of justifying the return to policies favoring special interests. 

In the two sections that follow, we have attempted to describe all the events over the last four years that we judge may have constituted part of a "swat" to destroy Hamilton and Catherine Austin Fitts and to stop the efforts of Ms. Fitts and her colleagues to proceed with a new business (through Solari, Inc.) to finance communities and alternative community media with private equity. The first section is a list of all audits, investigations (including the Qui Tam investigation described in greater detail in the Legal Background) and inquiries and associated leaks and conflicts of interest. The second section is a list of events involving harassment and surveillance experienced during the same four-year period. While it can be argued that some of these events may have occurred in the ordinary course and that the confluence of any two or three might be coincidence, we think that if you look at events over a period of years, the pattern that emerges speaks for itself. 

In viewing this pattern we would make several comments: 

  • The nature of a successful covert operation is to achieve one's goals without the general public's being aware that a single force is responsible for what appears to be a series of unrelated events. The solution to the problem of bright, tenacious members of the independent press who tend to expose such operations for what they are or might be is to discredit their work as unsupported and to label them as nuts. Witness Gary Webb and his newspaper series and book Dark Alliance, which inspired a CIA Inspector General's report that affirmed Webb's assertions that individuals involved in CIA covert operations were witnessing, facilitating and profiting from the dealing of illegal drugs on a massive scale.
  • The best way to prevent someone from harming your credibility by exposing the truth is to carry out a preemptive attack in which you accuse that individual of taking part in the very type of behavior that you are attempting to cover up. That way, when the time comes that the truth teller could harm your credibility, he or she will look silly or be ineffective. So, as an example, if you are guilty of insider trading, you attack any potential accuser for insider trading. And so forth. One of the best clues to understand who is behind a swat attack of the kind that Hamilton experienced is to simply determine: Who is in fact engaging in the type of behavior that Hamilton was accused of and needed a scapegoat? Specifically, who was concerned that Hamilton's promotion of on-line access to government information would illuminate its illegal operations? 
  • In many, if not most, instances of scandalous and immoral behavior by those in positions of authority, plausible deniability is key. Each person who contributes to the illicit affair must be able to avoid seeing the world whole and placing his or her behavior in the overall plan. Each participant must be able to delude himself or herself into believing that the actual result was not intended, that he or she was merely following orders and acting for the well-being of his or her family and organization members. For this reason, very few of those who carry out the "plan," if you will, recognize they are in fact members of a team. So, a HUD official does what is asked and as a result enjoys big budget increases. This official believes himself or herself free of any responsibility for the overall result and harm to taxpayers or for the destruction of internal controls and program integrity at HUD.
It is not necessary to the success of a covert operation that each participant has the same or even similar interests to those of other participants, that participants belong to the same political party or recognized social class, or even that the participants know each other. Picture a train. A very few passengers get on at the first stop and travel to the end of the line. Most get on and off at different points, with no awareness of the destinations or identities of the other passengers. But all have an interest in going in the same direction and arriving at their own individual destinations along the way without impediment, burden or undue cost or risk. When special interests can control large amounts of government and private funding to get what they want, it is not hard to see lots of government officials undertaking multiple actions that result in a common economic end. 


 
 

TABLE OF CONTENTS 













The Swat List: Audits, Investigations, Inquires, Leaks, and Conflicts of Interest

The Swat List: Audits, Investigations, Inquires, Leaks, and Conflicts of Interest


UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ON BEHALF OF DEPARTMENT OF JUSTICE (QUI TAM)
Date Description Persons Affected or Involved/Cost
August 6, 1996 The HUD OIG serves The Hamilton Securities Group, Inc. a subpoena duces tecum, requiring Hamilton to produce by August 13 an exhaustive amount of documents, including documents and records pertaining to two sealed bid auctions for single family mortgages, contract accounting papers since the inception of work for HUD and Hamilton financial statements for 1992 - 95. The subpoena asserts that HUD had information indicating that Hamilton may have had information relevant to an "ongoing investigation." The Federal False Claims Act requires that Hamilton be informed that it is the "Target" of a Qui Tam suit when it is served with a subpoena. Delegating the Investigation from the Department of Justice ("DOJ") to The US Department of Housing and Urban Development ("HUD"), which is not permitted by the Act, DOJ claims is not obligated to comply with the disclosure provisions of the Law. Hamilton believes that if the government had complied with the disclosure provisions, it would be a financially successful company today. This was the first of many efforts by the government to obfuscate and omit critical information. Subpoena preparation service and response required involvement of the HUD OIG lawyers, US Marshall Office employees, Hamilton's law firm, Hamilton board, Hamilton "Jedi Knights" team (organized to review documents and deal with the subpoena) and Hamilton information systems team (to write programs to locate and segregate information from Hamilton's server and employee laptops).
August 22, 1996 The HUD OIG serves Hamilton a second subpoena duces tecum requiring Hamilton Securities Advisory Services, Inc. to produce an even greater volume of documentation by September 12, including email communications between Hamilton, HUD and other loan sales team members over the period 1992 - 1996, records of communications with all loan sale bidders and materials relating to any relationship with Williams Adley (another loan sales team member). More of the same.
October 24, 1997 The HUD OIG serves Hamilton with a third subpoena, requiring Hamilton to produce bid documentation, records pertaining to conflicts of interest and waivers thereof of Hamilton and Hamilton subcontractors and teaming partners, records of Hamilton's relationship with e.villages, Edgewood Technology Services, Adelson Entertainment and ICS, records of agreements between Hamilton (or persons connected to Hamilton) and FHA loan sales bidders, records of communications with FHA's Comptroller, records pertaining to the HUD Neighborhood Networks program, records of communications with OMB, minutes and notes of meetings re the HUD loan sales and other HUD loan sales documents, Hamilton invoices and supporting documentation, virtually all of Hamilton financial records and expense documentation and personnel records, records re: Hamilton policies regarding electronic records and communications, Freedom of Information Act fact sheets concerning FHA mortgage sales and Hamilton insurance policies relating to HUD contracts. This was served a week after HUD cancelled Hamilton's contract. Subpoenae also were delivered to eVillages and E2 Databank, two Hamilton affiliates involved in non-HUD related businesses. Hamilton's relations with Adelson Entertainment Investors in e.villages and its computer learning center (who had performed work for Hamilton related to its HUD contract) became strained.
December 10, 1997 Subpoena of Catherine Austin Fitts's financial records from Hamilton's first lien creditor bank.  Sending a subpoena for personal records of Hamilton's President lent credibility to charges of a wide-ranging criminal financial fraud, thereby damaging business relationships further. Subsequently, DOJ informs Hamilton's attorneys of the existence of the Qui Tam only after Hamilton is destroyed. Hamilton learns of the specific Qui Tam allegations almost two years later from a news service article regarding Goldman Sach's description of its role as a co-defendant in filings with the Securities and Exchange Commission.
March 1998 The HUD OIG required Brand Lowell (Hamilton's former counsel in the completed TRO case) to go out to all Hamilton service providers to request records of business dealings with Hamilton.  This required involvement of the HUD OIG counsel, Hamilton counsel, former Hamilton employees and officer (who were among Hamilton unpaid creditors), all Hamilton service providers, most of whom had outstanding and unpaid bills for amounts owed them by Hamilton. The tacit suggestion that assistance of and involvement with Hamilton would result in dealings with federal enforcement had a chilling effect on Hamilton's relationships with current and former colleagues and counsel, causing significant fear. 
March 1998 Subpoena of the auctioneer of Hamilton's furniture and equipment, requiring detailed information about the identities of purchasers of Hamilton's assets and the assets purchased. The auctioneer subsequently "lost" all records of the sale and was unable to provide a full accounting to Hamilton. Interference in the smooth process of auction by requiring list of auctioneer clients, who might have been contacted by HUD (and may not have wanted to be contacted). Another tacit communication to Hamilton counsel and contractor that assisting Hamilton was dangerous. 
March 1998 By letter to the Special Masters during the week of March 10 (after the Special Masters were in possession of Hamilton offices and some 15 representatives of the FBI and OIG were occupying the offices, with only a single Hamilton former employee assisting with computer data recovery efforts) counsel to the The HUD OIG introduced the suspicion that Hamilton was attempting to destroy documents that would be responsive to the OIG subpoena. This set the stage for a series of moves apparently intended to implicate Hamilton in charges of obstruction of justice. As related in an affidavit by a building-related third party, the FBI/OIG got the building representative to open the locked basement door and moved two empty padlocked trash bins from the basement to Hamilton's offices. They then broke one padlock and obtained a key for the second, opened the bins up and filled them with hard copy accounting files found in Hamilton's offices. They then moved the bins back down to the basement. On a later date, the HUD OIG counsel sought entry to the locked basement from the same building representative, pulled out a camera and started taking pictures of the then-full trash bins. When Hamilton filed the affidavit with the Special Masters, counsel to the HUD OIG produced an affidavit by an OIG investigator  justifying this highly strange behavior. The Special Masters had entered into its "neutral" role conveying the clear impression of having been told that Hamilton had engaged in wrongdoing. Had Hamilton not first filed its eyewitness affidavit, the Special Masters surely would never have suspected that Hamilton's protestations of innocence had any merit.
Summer 1998 Subpoena of elderly uncle of CAF for financial documents relating to her sale of her interest in a family farm in New Hampshire. Fitts's uncle first received a telephone call from the HUD OIG in Washington stating that the OIG wanted documentation for Fitts's sale of her interest in the farm to him. He agreed to send the requested documents. Then, a few days later at about 6:30 pm, four FBI agents from Boston appeared at his door to serve a subpoena for the information he had agreed to send to Washington.  Fitts's whole family heard about this and some became terrified of becoming federal targets. The detailing of four FBI agents to travel from Boston, Massachusetts to Portsmouth, NH sent a clear message, in addition to costing the taxpayer a significant amount.
1998 Joint Senate staff inquiry into issue of the accuracy of loan sale negative credit subsidy calculations (i.e., calculations of profitability of the sales). The HUD IG is reported to have sent over to Capitol Hill boxes of documents showing that the credit subsidy savings were a sham and the Denver audit should be disregarded because of incompetence of the Denver audit team. Involvement by (1) Senate staff (2) HUD program staff, (3) the HUD OIG staff, (4) HUD Congressional liaison and (5) a HUD financial professional employed by HUD to reexamine the computations. Smearing of good name of Denver audit team. 
Summer 1998 Subpoenae  of  CAF personal financial records at Morgan Guaranty and Citibank,Hamilton complaint challenging right to issue under the Right to Financial Privacy Act,   DC District Court opinion  and  Appeals Court opinion. Hamilton counsel. Suit in Federal District Court and Appeals Court. The HUD OIG communicates to additional members of the financial community that Hamilton/its President are "trouble." 

FEDERAL GOVERNMENT AGENCIES

White House
 
Date Description Comment/Persons Affected or Involved/Cost
Early 1996 After one of four new financial advisory contracts is awarded to Hamilton, the Assistant Secretary of Housing/Federal Housing Commissioner informs Catherine Austin Fitts that the White House has ordered him to not let one of the new contracts to Hamilton and that he has chosen to ignore the order. This was one of numerous "heads-ups" during 1996 that indicated that political interference in contracting and program decisions was increasing steadily. This increased the cost and risk of managing the HUD loan sales and protecting the integrity of the process and the people asked to assist in getting the work done.

US Department of Justice, Civil Division, Commercial Litigation Branch
 
Date Description Comment/Persons Affected or Involved/Cost
March 1998 Letter from David Gottesman, Trial Attorney at the Department of Justice, to Brand Lowell (Hamilton's counsel) advising that, in connection with the upcoming auction of Hamilton's furniture and equipment, any person acting on behalf of Hamilton and who distributes any Hamilton funds to any other creditors ahead of HUD can be personally liable for amounts so distributed. DOJ's position as stated in the letter was strained, at best, since HUD had perfected no claim against Hamilton at that point.  This letter was intended as a personal threat to Catherine Fitts and those helping her who were working out of Fitts's "Fraser Court" home and were being financed through the liquidation of Fitts's personal assets. To protect these assets from seizure, Fitts (1) retained an attorney expert in DOJ asset seizures (2) occasionally had the house swept for "bugs" (3) had a gardener keep an eye out for contraband plants on the roof garden and (4) moved the Hamilton server to an attorney's office.

United States Congress [link to committees of Congress with HUD oversight or appropriations authority] http://www.hud.gov/bshelf10.html
 
Date Description Comment/Persons Affected or Involved/Cost
October 1996 In response to the civil action brought against HUD in June of 1996, Senator Lauch Faircloth, Chairman of the Subcommittee on HUD Oversight and Structure of the Senate Banking Committee, requested from HUD Secretary Henry Cisneros copies of all contracts and subcontracts awarded to Hamilton and summaries of Hamilton assignments and fees for the assignments, in addition to other documents. [October 1996 Faircloth letter to Cisneros,  November 1996 Response from HUD, and  November 1996 Reply from Faircloth].   
1997 Congress responds to constituent complaint about "fake" HUD loan sale credit subsidy computations (showing that the government has saved over $2.1 billion on the HUD loan sales) by requesting information from FHA/HUD, which was provided. When HUD receives a Congressional inquiry of this type, other work stops and high-level appointees and staff work with the HUD Congressional liaison to fashion a response.
1997-8 Joint Senate-House staff inquiry into loan sales and issue of accuracy of loan sale negative credit subsidy calculations. The HUD IG is reported to have sent over to the Hill boxes of documents showing that credit subsidy savings were a sham and Denver audit should be disregarded because of the incompetence of Denver team. After the conduct of much research and meetings among Congressional staff, the committee did not proceed with hearings on the HUD loan sales. The viciousness of the attack on Hamilton and, personally, on Fitts in connection with the credit subsidy savings computations reached a crescendo when Dick Ravitch, a director of a Hamilton affiliate, appeared in an October 1997 advisory board meeting and claimed (in front of other directors who are prominent members of the investment community) that the loan sales savings were false. Mr. Ravitch, who had earned substantial sums assisting Hamilton in its work for HUD, knew that what he was saying was not true. Ravitch, the Chairman of the AFL-CIO Housing Trust, was later to move his consulting and property management offices and to share an office suite with Paul Volcker.
1997-9 Congress referred to the General Accounting Office ("GAO") an inquiry into the credit subsidy calculations made by HUD and OMB with respect to the HUD loan sales. (based on constituent allegations that the $2.1 billion profits to the government were overstated or "fake"). GAO conducted an audit. The HUD Denver audit on credit subsidy prepared in 1996 was not made available to Congress and GAO and is still not available. This means that GAO's assessment was that the profits were greater than the $2.1 billion reported, as opposed to being so overstated as to be non-existent as was the position alleged by the HUD Inspector General.  This issue of credit subsidy is critical to the investigation. Hamilton was widely credited with designing innovations that led to substantial savings to the government and with efforts to enhance economic performance of communities. These savings were considered critical, because they also lowered the level of the appropriations needed to support the issuance of new FHA [HUD] insurance. Interestingly enough, while HUD took the position that the credit subsidy calculations developed by HUD and Hamilton were false, they continued to use the favorable numbers developed in these calculations when it was to HUD's benefit for issuance of new FHA [HUD] insurance. This astonishing hypocrisy is at the root of "how the money works" on the Hamilton "swat"

United States Department of Housing and Urban Development
 
Date Description Comment/Persons Affected or Involved/Cost
1996 -97 Hamilton receives requests from HUD FOIA office to provide help responding to Ervin's many FOIA requests.  Hamilton employees perform research work (with respect to documentation already in HUD's own files) not anticipated when Hamilton priced its HUD contract bid. Yet more work is required as a result of HUD's leaks re the HUD OIG investigation of Ervin's lawsuit complaints and the refusal of Assistant Secretary Retsinas to assure other HUD officials that the program was properly managed or to insulate program staff from personal attack, leaks and workload associated with Ervin's demands for documentation. Morale suffers, increasing workload and expense for Hamilton.
Winter, 1997-98 Investigation of alleged "conflicts of interest" by the attorney that Hamilton's bank, Franklin National, had retained to render a legal opinion regarding Hamilton's pledge of HUD accounts receivable. This lawyer's conflict of interest allegedly arose because he performed work for both owners of HUD-financed properties and for HUD in connection with HUD loan sales.  In point of fact, the law firm had obtained a broad waiver of potential conflicts of this very type from HUD as a condition to agreeing to represent HUD.  The bank's law firm dropped from its representation of Hamilton's bank and, as a result, ended the bank's efforts to get HUD to pay HUD's outstanding bills (for services performed by Hamilton) so that Hamilton could satisfy its obligations to the bank and other creditors. 
Winter 1997-8 Audit of E&Y contract to recover "contract overpayments" by HUD. This may or may not have been part of the E&Y Democratic National Committee contribution scandal matter described under "FEC" below.  Seizures of cash from contractors appear to be one of several sources of profits for HUD enforcement operations and its network of informants. E&Y also was employed as financial advisor with Hamilton as crosscutting financial advisor for a multifamily trust for the sale of subsidized housing on a place-based basis. This sale was opposed by traditional HUD housing constituents because it would have left the portfolio open to competition. With both E&Y and Hamilton gone, the transaction was abandoned.

United States Department of Labor
 
Date Description Persons Affected or Involved/Cost
January 1998 GAO sent a long, detailed letter of inquiry in response to a "Congressional inquiry" [see "United States Congress" above] requesting proof that E2 Databank had fulfilled its obligations under a DOL joint venture contract with Hamilton. Hamilton referred GAO to DOL for answers.  See  Hamilton's Response to GAO request. Compliance with this request for documentation of a contract completed some two years previously would have required days, if not weeks, of work by individuals no longer in Hamilton's employ.

United States Federal Deposit Insurance Corporation ("FDIC")
 
Date Description Persons Affected or Involved/Cost
Fall 1997 Audit of Hamilton's bank loan, which had been selected for audit at a regular bank audit conducted only six months earlier. This second audit occurred approximately two months after Hamilton's HUD contract was cancelled and followed private tips off to Hamilton's bank that Hamilton was "in trouble." Hamilton's bank, which was looking at a loan loss as the result of the abrupt cancellation of Hamilton's HUD contract and other HUD assaults to put Hamilton out of business, was further concerned. The bank's concern was exacerbated by the fact that the bank was in negotiations for a merger with another bank, which merger would have to be approved by its regulators.

Federal Courts
 
Date Description Comment/Persons Affected or Involved/Cost
Feb. 17, 1998  Hamilton is served subpoenas to produce documents in Civil Case, United States of America v. Streuby L. Drumm Jr. ET AL Consolidated with Streuby L. Drumm, Jr. ET AL v The Secretary of US Department of HUD and Beal Bank, CA Number: 97-528 & 97-530-5 Bankruptcy Court for the Middle District of Louisiana. Click here to link to Subpoena duces tecum,  subpoena for deposition  and CAF's response letter  saying, in effect, "go ask the HUD OIG."These efforts are used to support HUD's position that it is facing an onslaught of local litigation cases related to the HUD Loan Sale Program. This case and a local Michigan case appear to have been drawn up with support from Ervin & Associates or Ervin's court filings. The predicted onslaught of local litigation never develops. One was left with the impression that Ervin and some government officials were trying to encourage or generate local cases to build momentum behind a loan sale seizure effort.
May 1998 Catherine Austin Fitts as well as Hamilton's former attorneys Jenner & Block and Brand, Lowell and Ryan are served with subpoenae to produce documents in the civil case Ervin & Associates, Incorporated, ET AL v. Helen Dunlap, ET AL, 1:96-CV-1253. The issuance of these subpoenae cause an increase the law firms' risks incurred from involvement with Hamilton. The firms are required to expend efforts to comply, for which they are not reimbursed. Both CAF and the law firms face the prospect that they might unwittingly contradict statements made in response to similar the HUD OIG subpoenae and be accused of obstruction of justice or similar charges based upon any technical differences.

Federal Elections Committee
 
Date Description Persons Affected or Involved/Cost
October 1997  Investigation of and accompanying publicity about Ernst &Young's contributions to Democratic National Committee at time of renewal of its GNMA contract [the contracting vehicle used to contract with E&Y for FHA/HUD related work]. As the result of press leaks, E&Y's contract renewal was cancelled. Ernst & Young was the financial advisor that had performed a controversial study, released in April 1996, of the HUD/FHA portfolio of HUD held multifamily mortgages on properties receiving HUD Section 8 rental assistance payments.  Ernst & Young's conclusions were controversial among the members of the affordable housing community because the study showed, among other things, that many properties couldn't be supported at market rate rents even if the FHA [HUD] guaranteed debt were written off 100%. After Hamilton, Ernst & Young was the financial advisor most knowledgeable about  the HUD FHA portfolio and the most capable of assuming Hamilton's duties as crosscutter following the cancellation of Hamilton's contract. Click here to see The Washington Times Article.  Both E&Y and a law firm against which a baseless charge of conflict of interest was leveled by HUD in a Wall Street Journal article (see "U.S. Department of Housing and Urban Development" above), together with Hamilton, were at the time of the cancellation of Hamilton's contract in the process of developing a novel trust vehicle that HUD planned to use for the competitive disposition of loans on Section 8 assisted multifamily properties in a manner that allowed for rehabilitation of the properties and the offer of resident assistance programs. This "scandal" made it unlikely that E&Y would confirm Hamilton's conclusions about the HUD FHA portfolio and that the HUD loan sales program could be resumed. The cost to FHA/HUD of losing the two financial advisors most knowledgeable about the work required, combined with cancellation of outstanding procurements, provide political "air cover" for cancellation of the loan sales. Forgone credit subsidy savings from cancellation of the loan sales program, alone, is expected to total in the billions of dollars. The flip side is that this is the amount of consideration available to use to satisfy a variety of special interests.
October 1998 Investigation of the personal campaign contributions of Catherine Austin Fitts, President of Hamilton, to Congressman Rick Lazio. Her contributions had been within the $1,000 per year limit: $2,000 over 2 years. Congressman Lazio, a key member of Congress for HUD because he served on two Congressional committees that oversee housing matters and initially had supported FHA's portfolio reengineering proposal. Coincidentally or not, Congressman Lazio also was under general FEC investigation at this time.  Click here for:October 21, 1998 Letter from FEC to CAF,   Letter to the FEC on behalf of all Lazio campaign donors, November 13, 1998 DBR Response to FEC on behalf of CAF,   June 11, 1999 Resolution Letter  stating that the FEC would take no action against CAF, and Congressman Lazio's  letter returning CAF's campaign contributions. Leaks from HUD in late 1997 and early 1998 falsely accuse Congressman Lazio of trying to protect Hamilton in exchange for these contributions.

By 1998, association with Catherine Fitts becomes a liability for members of Congress. In the one bright spot of government helping to defray mounting legal and compliance expenses, Congressman Lazio's office sends back her contributions. 

General Accounting Office ("GAO")
 
Date Description Comments/Persons Affected or Involved/Cost
January 1998 A subsidiary of Hamilton, E2 Databank, Inc., had entered into a two-year joint venture with the Department of Labor to create a databank on pension fund investments that were measured and tracked for both return on investment to investor and return on investment to collateral parties. These databases were increasingly being designed by Hamilton to show how both private and government pension fund investment worked place by place along with other private and government investment. In early 1997, Hamilton and DOL elected not to exercise and option for a third year. For Hamilton, the costs of compliance 
with the many the government requirements cost Hamilton more than the value of the government's contribution. GAO wrote Hamilton a letter, based on a "Congressional inquiry" requesting detailed information about Hamilton's performance under the agreement.		 Hamilton's software tools, which showed "how all the money worked" by place, were not necessarily welcome to those who were manipulating government contracts, guarantees or other forms of government financing and manipulating government related or government insured pension fund investments in a manner that violated the spirit of sound fiduciary principles, if not the governing regulations and laws themselves. 
Congress referred to GAO an inquiry into the credit subsidy calculations made by Hamilton with respect to the HUD loan sales (based on constituent allegations that the profits to the government were overstated or "fake"). GAO conducted an audit. Click here for 1999 GAO Report confirming reasonableness  
Some time following June, 1996 sale Audit of the landmark securitized sale of HUD FHA multifamily mortgages backed by "partially assisted" properties to determine the impact on tenants of the assignment of the responsibility to enforce the government's rights under regulatory agreements. The "partially assisted" sale was significant because it was the first sale of mortgages on properties on which rent subsidies were paid by the government. Prior to this sale, it was assumed HUD would never be able, practically and legally, to involve the private market in implementing regulatory agreements that insured certain rights to low-income tenants. The market perceived, accurately, that if the sale were successful, conventional asset managers and their investment partners could enter into incentive contracts (with social regulatory requirements) with the government for the management of properties. In addition, the securitized trust structure opened the way for place based bids (combining single family and multifamily mortgages and properties in a place) in a manner that would allow the market to estimate all government investment in a place and the performance of that investment. While reengineering performance on a place based basis would be highly profitable for taxpayers, communities and new investors who won in a model that promoted open disclosure and competition, the impact on traditional special interests who could not compete successfully in this environment was obvious. Goldman Sachs and JE Robert, its asset management partner, would be under scrutiny. JE Robert was the management company employed by Goldman to assume HUD's rights and enforce the mortgages and regulatory agreements. Within days of the sale, JER contacted HUD to confirm its right to take foreclosure actions against defaulting borrowers under these mortgages and, in fact, filed many foreclosure suits when HUD provided such confirmation. Many HUD landlords were then in danger of losing control over their properties.

Internal Revenue Service
 
Date Description Comment/Persons Affected or Involved/Cost
Summer 1997 Audit of Hamilton's 401K plan. The logical source of funds for the President of Hamilton to finance November, 1997 Hamilton payroll and ongoing costs to ensure compliance with the time- consuming close out requests in connection with the cancellation of Hamilton's HUD contract was to obtain a loan secured by the President's interest in the 401K plan. Because of the audit, Hamilton's accounting firm advised that CAF could not use it to finance the firm. Instead, she must liquidate her interest at a substantial penalty rather than use it as security for a loan. Fitts liquidates her retirement savings of $500,000, paying $250,000 in taxes and early withdrawal penalties and using the rest to finance her personal legal and living expenses and to loan additional capital to the firm to pay legal and employee expenses to fulfill HUD requests for additional documents and contract close out and to continue its operations. 
1998 IRS fails to reconcile Hamilton FUTA deposits for 1996 with District of Columbia Department of Taxation after receiving notice from DC that Hamilton had deposited $0 under tax ID number 0000000. See "District of Columbia Department of Taxation" below. Results of combined IRS/DC Department of taxation actions is a deficiency notice from IRS for alleged unpaid deposits, interest and penalties. Solari employees rummage through old accounting records at the Special Master's to find copies of 1996 cancelled deposit checks. Hamilton's outside counsel sends letter on Drinker Biddle& Reath letterhead explaining the error.
1999 IRS fails to reconcile Hamilton FUTA deposits for 1997 with District of Columbia Department of Taxation, continuing the error from the previous year. Solari's General Counsel copies IRS and DC DOT with previous year's correspondence over the same problem in 1996 and request the two agencies to work the matter out between themselves.
March 2000 IRS, ignoring previous correspondence from Solari's General Counsel, sends Hamilton a notice of adjustment in account for alleged $0 deposits in 1997. Solari General Counsel, failing in attempts to locate assistance from DC Department of Taxation, requests help from IRS, but succeeds only in obtaining the correct telephone number of the DC Department of Taxation department that is responsible for FUTA deposits. The matter appears resolved only after Hamilton obtains a copy of the 940C from DC DOT and mails to IRS.

THE SMEAR CAMPAIGN: WHISPERS, LEAKS AND NEGATIVE PRESS 
 
Date Description Persons Affected or Involved/Cost
July-November, 1996 Hamilton learns that a 3-4 reporter team at US News & World Report is working on a HUD scandal article that sounds as though it is targeted HUD Secretary Cisneros and Catherine Austin Fitts (who worked for Kemp as Assistant Secretary of Housing when he was Secretary of HUD). A pre-interview letter to Henry Cisneros refers to the Department as "scandal tarred." Fitts sends a letter to one of the US News Editors and the new Editor of USNWR, explaining that USNWR is drawing conclusions before doing the research and of proactively creating a rigged investigation. USNWR agrees to listen to a Hamilton presentation explaining how loan sales work. The lead reporter subsequently resigns and goes to USA Today. A second reporter goes to The Washington Post claiming that Mort Zuckerman improperly sabotaged the article. Hamilton spends an estimated $350,000 of firm time and fees to law firms and a public relations firm in attempts to address many inaccuracies likely to be repeated in the story. 

Interviews of HUD employees by HUD OIG investigator that place emphasis on insinuations that Fitts is a homosexual who has had sexual relations to win contracts and additional types of "cultural warfare" make for an expensive effort.
November 11, 1996 US News and World Report article "Of Contacts and Confidence," which reported allegations of irregular contracting practices at HUD involving Hamilton and aired accusations that Hamilton had steered some of the HUD note sale business to favored Wall Street firms. In pre-publication conference, Ed Pound, the principal reporter, tells Hamilton that the HUD OIG "at the highest level" had assured him that Hamilton and Fitts are guilty of criminal acts and will be indicted. Adverse publicity in a national business publication is damaging to prospects of future business with third parties and to relationships between Hamilton and HUD personnel.
October 13, 1997 Article in The Washington Times by George Archibald entitled "HUD Halts Contracts to Major Clinton Donor" reports that the Ernst & Young financial advisory contract has been cancelled. Besides Hamilton, Ernst & Young was the financial advisor most familiar with the FHA portfolio and its problems, and E&Y was the financial advisor in connection with a controversial project to securitize HUD held mortgages on HUD assisted Section 8 properties.  The damage to Hamilton from the 1997 leaks by HUD was that it was unable to win new business or raise capital to continue operations after the abrupt cancellation of the HUD contract. In addition, the damage to the excellent reputation that Hamilton and its employees had made it more difficult for laid-off employees and contractors to secure new employment and made it impossible for Catherine Fitts and former Hamilton colleagues to pursue profitable business opportunities through the new company, Solari.
October 20, 1997 Article in The Washington Times by George Archibald entitled "Cuomo Dumps Financial Advisor" reports the cancellation of Hamilton's financial advisory contract. The article says Cuomo "ordered a fresh top-level review of bid-rigging charges that have tainted multibillion-dollar federal mortgage sales." The article says HUD accused Hamilton of covering up erroneous instructions for a computer model used to select winning bidders. [In fact, Hamilton had reported that error to the Assistant Secretary/FHA Commissioner and FHA Comptroller in December 1996.] Departmental officials are quoted as saying the review directed by Mr. Cuomo "could run into the millions of dollars of additional claims." The article also says an unnamed source confirmed that Nicolas Retsinas, FHA Commissioner, "was completely on board and concurred with" the decision to terminate Hamilton's contract. The article also reports that the US Attorney's Office had requested a stay of legal discovery in the Ervin & Company Bivens lawsuit because a criminal probe was being conducted to track the main allegations of the civil lawsuit. J. Ramsey Johnson, principal assistant US attorney requested the stay and said "the criminal investigation is ongoing and concerns an extremely complex set of facts." Click here to see 2/28/00 The Washington Times article. In one of the more upside-down events in reengineering government, HUD program officials decide to blame a contractor for HUD program decisions and responsibilities, and then leave it to the contractor to protect the integrity of HUD transactions from a phony seizure effort by the agency itself. Apparently, HUD believed it could make more money by seizing back its own loan sales than managing its current portfolio responsibly.
October 20, 1997 Article in the Washington Postby Jennifer Rothacker entitled "HUD Fires Financial Advisor." It says that a news release by the department said that Cuomo's investigation of Hamilton had concluded that Hamilton "failed to provide accurate financial advisory services to the mortgage note sales program" since its contract started in 1993. This statement contradicted a weekly performance report and meeting process, where Hamilton was told consistently that its performance was good to outstanding by the government oversight officials. The loan sale program was designed with regular feedback to ensure "learning" and performance of the highest standards by all parties.
October 21, 1997 Article in the Wall Street Journal by Carl Johnston and Anita Sharpe entitled "HUD Fires Contractor after Finding Errors Tied to Program on Mortgages." The article appears to tie the "firing" by Secretary Cuomo with his discovery of an error on floor constraints on two earlier loan sales reported almost a year ago. In fact, the letter terminating Hamilton's contract states that it was terminated for the convenience of the government, not for cause. 

The article says Cuomo was alerted to mortgage auction irregularities in 1995 while he was an Assistant Secretary [of Community Planning and Development]. His reference is to a letter from counsel for Asset Strategies, Inc., a disgruntled subcontractor on a mortgage loan sale whose recommendations were not adopted. When Asset Strategies refused to go forward, it was fired by Hamilton for failure to perform and poor performance. According to the article, HUD had filed documents with the court indicating it was exploring the settlement of the Ervin action against HUD the previous week.

 Reports to Hamilton from reliable sources indicated that Ervin had rejected a settlement of $10 million for the lawsuits he had filed against HUD. The purported reason for the rejection was that Ervin sought the award of HUD contracts in addition to the $10 million cash. Awarding contracts in this manner would violate the contracting law Ervin accused other contractors of violating.
October 21, 1997 Article in The Washington Times by George Archibald entitled "HUD Ignored Charges of Bid Rigging." Here, Secretary Cuomo takes credit for having asked HUD two years earlier to look into charges that Hamilton illegally gave inside information to Wall Street bidders. Agency officials are credited with saying that Cuomo was going to "move against HUD officials who protected Hamilton and prolonged corruption that embarrassed him." Cuomo is reported as being angry that his own promised program to clean up waste, fraud and abuse had been "clouded by a criminal probe of note-sale corruption that might have been prevented." The article says counsel for Asset Strategies had charged that BlackRock had received a "servicing tape" containing payment history of all HUD-backed mortgages. The article goes on to say that the Department had issued a brief statement in [Assistant Secretary/Federal Housing Commissioner] Nic Retsinas' name "saying Hamilton was fired because 'at this time it was appropriate to recommend termination of the contract.' HUD cited 'past performance errors by Hamilton' among other things." The article says the charges of bid-rigging were part of an ongoing criminal investigation by HUD's Inspector General and the US Attorney's Office. A Hamilton employee is said to have made the statement that the bids were "changed" before they were fed into the Lucent/Bell Labs computer. The Washington Times never made an attempt to contact Hamilton to confirm or deny any statements in any of its articles during this period and a number of calls to The Washington Times and its editors went unanswered.
October 21, 1997 Article in the Associated Press by Jennifer Rothacker entitled "Financial Firm Fired after HUD Discovers $3.8 Million Error." The contract termination letter from HUD stated that the contract was terminated at the convenience of the government.
October 23, 1997 Article in The Washington Times by George Archibald entitled "HUD Told Last Year of Rigged Loan Sales." In this article, the discovery of the optimization error is attributed to "other contractors." It said the discovery occurred on October 24, 1996 at a planning meeting for the sale of additional multifamily loans and attributes this information to "a former Hamilton employee who asked not to be named." The employee is quoted as saying that Hamilton failed to tell HUD of the problem until December 5th, having "sat on" the information for six weeks. In fact, Hamilton conducted an investigation after finding the possibility of a discrepancy itself and reported it to HUD as soon as Hamilton had drawn any conclusions from its research, subsequently reporting final conclusions.  No effort was made to contact Hamilton to confirm the facts and therefore libelous information against Hamilton was communicated to the Washington, DC community. The role of The Washington Times in what amounts to a smear campaign speaks for itself. No retractions or corrections have been published to date (March, 2000). 
October 1997 Article in The Washington Times by George Archibald entitled "HUD Orders Fired Firm to Surrender Documents." [This article is undated but refers to Hamilton laying off about 1/3 of its workforce "this week."] The article focuses on the aspect of the HUD OIG subpoena requiring that Hamilton turn over bid documentation and suggested that Hamilton might resist turning over the materials " because of legal complications in a criminal probe and the firm's defense in a civil lawsuit charging corruption," a fired Hamilton is reported as saying. Senate sources reportedly said Jenner & Block's representation of Hamilton was complicated to the fact that President Clinton had nominated the wife of a Jenner & Block partner as General Counsel at HUD. Robert Pincus, President of Franklin National Bank, denies reports by laid-off employees that Hamilton was closing. These leaks were so clearly in violation of procedures adn laws related to conduct of the government's "investigations," that Hamilton's counsel wrote a letter to the HUD IG's General Counsel.
Thanks-giving, 1997 Hamilton's counsel, Jenner & Block, which had up to this point advised Hamilton not to speak with anyone about the HUD investigation and actions, agrees that, in light of recent press developments, it may be advisable to change this position. After speaking with a number of reporters, Catherine Fitts and other Hamilton employees make a substantial investment of valuable time with a seemingly perceptive, excellent Washington Post investigative reporter. Between early December and March, Hamilton provided full access company records and conducted interviews. A photographer took pictures. The reporter assured Fitts that a major story was ready to run in March. Then, at the last minute, the story was "bumped," purportedly as the result of the fast-breaking Paula Jones/Monica Lewinsky scandal. Phone calls and emails to the Washington Post reporter remain unanswered since June 1998. The story never ran. 

During the time that Catherine was working with the reporter from the Post to complete the story, she was invited to a Washington Post party by Ester Dyson and Katherine Graham. As Fitts walked through the receiving line to shake both Dyson and Graham hands, they refused to receive, shake hands or speak to Fitts in a manner that was very intentional, public and noticeable.

 With the "free press" thus muffled, Hamilton is left unprotected by the prospect of negative headlines, and HUD/DOJ is free to engage in activities that violate Hamilton's and its employees' basic rights to privacy, use and enjoyment of private property, presumption of innocence and freedom from government tyranny. Ultimately, this leads to closure of the company, denial of meaningful access to and possible destruction of valuable records and databases, libel and slander sufficient to ruin business reputations and prevent entrepreneurial efforts in connection with new business, seizure of company and personal equipment. 
March 1998 After months of in-depth investigation, a Washington Post article, expected to run on the front page and to be the first accurate piece of reporting about the facts, does not appear. The author says delays in publication of the story result from the Paula Jones and Monica Lewinsky stories, but the article never runs and the reporter does not return telephone calls. In the process of researching the story, reporters report that the HUD IG has provided assurances that Fitts is guilty of criminal activities and that Ervin has a team of some seventeen people who appear to be working full time on the HUD investigation effort. The question remains "Who is financing Ervin or who is promising him what?" Since the Qui Tam is sealed, no one can calculate what percentage of the value of a HUD loan sale assets Ervin stands to earn. What is interesting is that under the False Claims Act, Ervin, if successful, could earn more from filing this suit (calculated as a percentage of the "false claim", i.e., the value of loan sales assets seized back), than Hamilton was for helping HUD conduct the loan sales. As a HUD contractor, Hamilton was never permitted to earn a fee based upon a percentage of the HUD's sales proceeds or of the profits.

After spending a substantial amount of time providing documentation and information to reporters, Fitts concludes that no positive story will ever be allowed to run in the national media, and that efforts to work with the national media are not a good investment of her time.
1996-2000 Throughout the period, Hamilton and Catherine Austin Fitts receive reports from reliable sources that Fitts is guilty of criminal actions and will be indicted. These "assurances" come from government officials outside HUD. Marketplace feedback convinces Fitts that all potential strategic partners and investors will be told the same thing. She comes to believe that marketplace smear efforts come from private and government sources far above HUD.  
February 28, 2000 The Washington Times runs an article by George Archibald entitled "Justice unable to find bids worth $5.2 billion", which refers to the "criminal" investigation of Hamilton many times, even though the criminal so-called "investigation" had been dropped by the Justice Department. The article, which lists spokespersons at HUD as its source, contains many inaccuracies and libelous statements, the newspaper not having contacted Hamilton or its counsel for verification of facts. Nevertheless, the article contains direct quotes from John Ervin. Ervin's counsel, Wayne Travell, is quoted as suggesting that, based upon a FOIA appeal discovery squabble over the location of several three-year-old computerized bid cards for HUD mortgage auctions, "what it means is the government conducted $8.9 billion worth of auctions of government notes and never did even the most cursory review of how their contractor conducted those sales." After Hamilton had repeatedly complained to Archibald about inaccuracies in his coverage of Hamilton in his series of articles and asked to meet to discuss why the author would not allow Hamilton to comment on allegations against Hamilton before articles are published, the paper continues to print inaccurate information without verification with Hamilton and refuses to meet with Hamilton. The article initially appears to be intended to set up a rift between the Department of Justice and the OIG. Quotes from discovery affidavits by HUD employees appear to be aimed at closing down any communication between Hamilton and HUD employees. Hamilton's counsel contacted the Deputy Editor of the newspaper, who appeared unmoved by suggestions that the paper had libeled Hamilton and printed numerous inaccuracies that could have been cleared up had Hamilton or its counsel been contacted. On February 29, Hamilton's counsel sends a letter to the editor, Wesley Pruden, demanding a meeting to discuss ongoing inaccuracies, failure to verify alleged facts with Hamilton and libelous charges that Hamilton has "admitted" to "bid tampering" and requesting a meeting. In reply, Hamilton's counsel receives a letter from James A Barker, Jr., Esq. on behalf of the paper refusing a meeting and suggesting Hamilton propose language of retraction for the paper to consider. Hamilton's counsel sends a letter on March 17 proposing such language and again requests a meeting. Hamilton later suspects the article may have been intended to influence the decision in the Court of Claims, which is handed down on March 15, 2000 on a Motion in Limine filed by Hamilton; the decision is adverse to Hamilton's interests. 

Subsequent calls by Fitts on March 27 to Archibald's immediate superior, Fran Combs requesting an opportunity to meet and discuss the WashingtonTimes refusal to call, contact or respond to post-publication requests to communicate, go unanswered.

DISTRICT OF COLUMBIA AND STATE GOVERNMENT AGENCIES

District of Columbia Department of Taxation/Internal Revenue Service
 
Date Description Persons Affected or Involved/Cost
Summer/

Spring 1998

 Extended delay in processing 1997 refund request following simple intra-subsidiary error among Hamilton affiliates in depositing required 1996 tax payments. Hamilton required to invest substantial time and to recover copies of checks to DC from Special Masters to prove deposits were made. Three DC Department of taxation employees were involved in processing of bank levy papers on Hamilton bank account and resolving the deposit error.
1998 Notice from IRS that DC account 000000 as reported by DC shows no 1997 contributions and therefore Hamilton owes some $20,000.  Hamilton's outside counsel drafts letter to IRS and has numerous conversations with DC Department of Taxation staff to resolve the error. Two employees of Solari, Hamilton's outside counsel and an employee of Storch & Brenner search among the hundreds of boxes of Hamilton documents for cancelled checks to prove to DC DOT that the deposits had been made.
February 9, 2000 Solari's General Counsel calls the DC Department of Taxation to check on the status of Hamilton's 1998 refund request that was filed in September. She is told by a Ms. Bland the Department has no record of a tax return or refund request and Ms. Bland requests a copy of the first two pages of the tax return. Hamilton's accountant faxes her a copy. By 2/23/00, still finding no one at DC DOT to return calls or locate an auditor, Hamilton's General Counsel calls Mayor Anthony Wilson's office for help and faxes a copy of the return receipt for the tax return. The next day, a Mr. Weberling calls to say that he is Hamilton's auditor and has been attempting to contact Hamilton for more information since November, but that Hamilton's "Big Six" accounting firm's telephone is disconnected. He requests copies of part of Hamilton's 1998 Federal tax return, which are duly mailed to him. He says the DC DOT receives mail only on Mondays, Wednesdays and Fridays and it takes six days for him to receive the information. He then informs Hamilton's accountant that District law prohibits the net operating loss carry-back claimed on the tax refund request filed by a the "Big Six" firm due to an anomaly affecting consolidated groups of companies, and that the problem has been addressed in a change in law effective for tax returns filed after 1/1/00. He advises that he will send an adjustment proposal on 3/20/00. The adjustment proposal is received by Hamilton on 3/27/00. Hamilton is informed that after a refund request is approved, it will take 4-6 weeks for "processing." Hamilton finds the excuses by DC DOT questionable, particularly in light of the fact that the "Big Six" accounting firm whose telephone number is purportedly "disconnected" is the same accounting firm that paid the Mayor sizable "consulting fees" during his campaign for this office. 

District of Columbia Department of Employment Services/Department of Tax and Revenue and IRS
 
Date Description Persons Affected or Involved/Cost
1998 Notice from IRS that Hamilton, with DC account number 000000 as reported by DC shows no 1996 FUTA contributions to offset against amounts owed the IRS for FUTA and therefore Hamilton owes the IRS some $20,000. Hamilton's outside counsel drafts letter to IRS and has numerous conversations with DC Department of Taxation staff to resolve the error. Two employees of Solari, Hamilton's outside counsel and an employee of Storch & Brenner search among the hundreds of boxes of Hamilton documents for cancelled checks to prove to DC DOT that the deposits had been made.
Spring 1998 Audit of Hamilton's unemployment account after claims by laid-off employees.  Hamilton's outside counsel contacts the Department and is told there will be a meeting to discuss – never follows up on meeting.
Spring 1998 Audit of Hamilton's unemployment account after claims by laid-off employees.  Hamilton's outside counsel contacts the Department and is told there will be a meeting to discuss – never follows up on meeting.
December 21, 1999 Notice from IRS that DC account 00000 as reported by DC shows no 1997 FUTA contributions and therefore Hamilton has no DC offset for IRS FUTA purposes. Solari's General Counsel sends letter to IRS and DC DOT enclosing a set of photocopies of previous year's correspondence on the same issue after failing in numerous attempts to resolve the issue in telephone conversations with the IRS and DC DOT.[Click here to view letter and attachments]
March 20, 2000 Statement of adjustment to Hamilton'sFUTA account to notify Hamilton that on April 10, 2000 it will assess $11,350 for deposit owed, penalties for late deposit and interest if no deposit is made. Counsel calls the IRS and tells the story. A Mr. Grey in taxpayer assistance at IRS refers the matter to someone who will call within one week and provides a DC DES contact number. He says four or five times that the IRS can do nothing if the DC DES reports the wrong deposit amount. He denies that the IRS has effectively received notice that the $0 deposit is incorrect, since there is no taxpayer identification number given for the deposit statement. Counsel calls the DC DES telephone number provided by the IRS and speaks to "Iris", who transfers the call to "accounting", where a Ms. Jing answers. Ms. Jing says she is unable to check on whether anyone has received Hamilton's December 21 letter and can only provide a Form 940 C within a week. When asked what address is on file, she provides Hamilton's old Dupont Circle address, notwithstanding that correspondence has indicated that that is no longer a good address.

District of Columbia Zoning Building Office
 
Date Description Persons Affected or Involved/Cost
Late 1997/ Early 1998 On-site inquiries at Fraser Court (which is located in an alley in Dupont Circle) re: building permit for improvements being made inside. CAF's zoning counsel is contacted, resulting in $15,000 legal and contractor expenses to Catherine Austin Fitts for permits and new zoning

District of Columbia Department of Public Works
 
Date Description Persons Affected or Involved/Cost
June 1999 $500 ticket and summons to a court hearing to part time Solari employee, an immigrant mother of five for storing a mattress in her carport and not responding to the original ticket. (which she never received) The employee died the night of the court hearing of a heart attack, leaving a husband, five children, and numerous grandchildren.

PRIVATE PARTIES

Hamilton's Bank
 
Date Description Persons Affected or Involved/Cost
Week following October 17, 1997 Hamilton's bank, which held a lien on Hamilton receivables, receives an "anonymous tip" by telephone informing it that Hamilton's contract has been cancelled and it is "about to go under."  Hamilton's credibility would have been adversely affected had it not contacted the bank before the call was made to report the contract cancellation.
January/

February 1998

 After the bank's law firm declines to proceed with work on a legal opinion regarding the validity of the bank's lien on HUD receivables, the bank contacts Tucker, Flyer & Lewis requesting that it research the same issue. Tucker, Flyer represents Ervin & Associates in the Bivens suit against HUD accusing Hamilton of bid-rigging and insider trading and, unbeknownst to Hamilton, in a qui tam suit against Hamilton. Nevertheless, a Tucker Flyer partner assures the bank there is no conflict of interest.  Hamilton found it unusual that its bank's President gave confidential Hamilton financial information to attorneys representing a party with clear adverse legal interests to Hamilton's. 
Spring 1998 Hamilton attempts to hire bankruptcy counsel. The first firm, which was portrayed as having particular expertise, cancelled the first appointment when a housing partner alleged that the firm "might" have a conflict of interest due to its dealings with HUD. A second firm, recommended by the first, was forced to resign several weeks into its representation when an unnamed client protested the representation on conflict of interest grounds. The bankruptcy attorney did not believe there was any conflict but gave up the account in order to appease the firm's other client[s]. Hamilton had no meaningful representation at a key time in the course of events. Prominent Washington attorneys who had no animus against Hamilton were made aware that association with Hamilton was dangerous. They were also left with unbillable fees. 
March 1998 Hamilton's bank never provided a final accounting of the proceeds it received from the auction of Hamilton's furniture and equipment. Hamilton's auctioneer also failed to give Hamilton a comprehensive accounting. Hamilton attempts to hire bankruptcy counsel. The first firm, which was portrayed as having particular expertise, cancelled the first appointment when a housing partner alleged that the firm "might" have a conflict of interest due to its dealings with HUD. A second firm, recommended by the first, was forced to resign several weeks into its representation when an unnamed client protested the representation on conflict of interest grounds. The bankruptcy attorney did not believe there was any conflict but gave up the account in order to appease the firm's other client[s]. Both Hamilton's outside counsel and Solari's in-house counsel have spent many hours dealing with this situation. Fees for filing Hamilton's tax returns increased as a result of dealing with this issue. 
Summer 1998 Tucker, Flyer & Lewis holds a seminar on small business lending with Hamilton's bank in which Hamilton's bank helped promote Tucker Flyer's legal services to women-owned businesses in the Washington area. Later, during 1999, Tucker, Flyer's business failed and Ervin's counsel joins Venable, Baetjer & Civiletti. A number of Tucker Flyer's partners join the firm of one of Hamilton's counsel, which claims that these attorneys had not been directly responsible for profits attributable to Ervin & Associates legal work that all Tucker Flyer partners shared. which claims that these attorneys are not directly responsible for legal work generating the profits to all Tucker Flyer partners from Ervin's efforts. Hamilton's bank never provided a final accounting of the proceeds it received from the auction of Hamilton's furniture and equipment. Hamilton's auctioneer also failed to give Hamilton a comprehensive accounting, leaving Hamilton to guess how mu.ch it owes on the bank loan.  During this period, Catherine Austin Fitts is informed that Tucker Flyer and its partners are important clients of the bank and the bank sees no connection between Tucker Flyer's efforts to ensure that HUD does not pay Hamilton and the bank.  Both Hamilton's outside counsel and Solari's in-house counsel have spent many hours dealing with this situation. Fees for filing Hamilton's tax returns increased as a result of dealing with this issue.
Spring 1998 Hamilton's bank, which at that time controlled what few assets Hamilton retained, reneged on its agreement to pay former Hamilton employees for their time in performing corporate compliance and accounting functions to close out 1997-98 operations.  Catherine Fitts covered the costs of the services provided from personal funds.
July 1999 Hamilton's bank informs the major accounting firm providing services in connection with filing of Hamilton's 1998 tax return, inaccurately, that Hamilton's debt to the bank exceeds the amount of an expected income tax refund. Since Hamilton had arranged for the accounting firm to receive the proceeds of the refund, Hamilton believes the bank intended to seize its funds. When confronted with the facts, the bank, without prompting further of any sort, offers to write off a substantial portion of Hamilton's debt. However, IRS-required forms reporting interest paid on the loan during 1999 did not reflect the write-off. As of February 2000, long after Hamilton's counsel requests an accounting of the loan, including amounts paid over to the bank from Hamilton's auctioneer, no accounting is forthcoming and Hamilton's bank, which at that time controlled what few assets Hamilton retained, reneged on its agreement to pay former Hamilton employees for their time in performing corporate compliance and accounting functions to close out 1997-98 operations.  Conflicts of interest with other bank customers and business relationships as well as the need for regulatory approvals in its acquisition may have resulted in behavior that appears contradictory to the best interests of bank shareholders .Catherine Fitts covered the costs of the services provided from personal funds.

Hamilton's Errors and Omissions Insurance Carrier
 
Date Description Comment/Persons Affected or Involved/Cost
November, 1997 - January, 1998 Hamilton's errors and omissions insurance carrier had been informed of the Hamilton optimization model issues reported to HUD in 1996. When HUD withheld contract amounts owed to Hamilton based on claims of breach of contract relating to this, which should have been covered by insurance, the carrier agreed to pay Hamilton's attorneys for work related to this matter. In December, 1997, the insurance carrier indicated it might dispute the claim and reneged on its agreement to pay Jenner & Block for services already rendered. When Hamilton represented to the US District Court (Judge Sporkin) that any obligations Hamilton might have in connection with the error should be covered by insurance, the only assurances the judge will accept in this regard are direct promises by the insurance company that it will not avail itself of any rights under the contract to disavow coverage, a promise that it cannot make. Failure to accept more reasonable assurances from the insurance company results in an adverse ruling and the shutting down of Hamilton's operations. Jenner & Block was forced to resign as Hamilton's counsel, there being no source of funds to pay its legal expenses. Catherine Fitts was left to arrange for counsel to pursue HUD in the District Court without funds from Hamilton or the insurance company. After Hamilton lost its motion for temporary restraining order against HUD, Hamilton was left with no counsel to represent it for a period of several weeks. At that time, the HUD OIG seized upon the opportunity to file a petition to enforce subpoenae and to enjoin Hamilton, and made massive document demands upon Hamilton. By Fitts's paying personally for counsel to defend during this proceeding, Hamilton was able to institute the special master arrangement to ensure court management of Hamilton's documents.

New counsel had no basis for understanding the unreasonableness of HUD's position. This meant that they and the Solari team spent a year helping them get up to speed. The HUD OIG's counsel cites Hamilton's change in counsel as proof that Hamilton is up to something funny to the court and the Special Master appointed by the court.

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