Mr. TOLAND (continuing). and was informed that an accredited agent or representative may negotiate business with the Navy or Army. Individuals who are hired to procure a specific order, or a lobbyist, are not eligible. Therefore, in drawing up our contract, it will be advisable to designate me as your accredited agent or representative. It will be necessary to draw the contract for a minimum of 3 years, as the defense program will continue for at least 5 years. I saw Commander Mather today in regard to. Battle Lookout Alidades. He is ready to order 600 and the first delivery date is to be August 1, 1941. This order will supersede last week's request for 156. There will be an additional order for 575 at a later date. I am particularly interested in getting this order because the late delivery date will take up any slack for the following year. You are to see Mr. Taylor whose address I left with you. He is the Navy's civilian engineer who will give you the necessary information on the type of alidade required. We shall soon be requested to bid on compasses, life-boat compasses, and more binnacles. The Navy Department will try to allocate about six items of manufacture to our plant. You realize they cannot give me this assurance at the present time because they are not yet thoroughly organized. Please let me know when you expect to see Mr. Taylor. I may arrange to go with you. I want to see Commander Sheppard who is located at the navy yard, close to Mr. Taylor. Sincerely yours, You wrote that letter? Mr. STONE. I believe so; yes, sir. A. H. STONE. (The letter was received in evidence and marked "Exhibit No. 418.") Mr. TOLAND. At that time, on August 6 and prior to that time, you had been interested and represented the company in connection with the items referred to in this letter? Mr. STONE. I believe so. Mr. TOLAND. On September 9, while you were still an active employee of the Federal Housing Administration, you wrote to Mr. Reed. Who is Mr. Reed? Mr. STONE. What is the address, please? Mr. TOLAND. 1 Wall Street. Mr. STONE. Mr. Reed is the attorney for the Lionel Corporation. Mr. TOLAND. He is the attorney for Lionel? Mr. STONE. That is right. Mr. TOLAND. He is in what office? Mr. STONE. I don't know its full name. Mr. TOLAND. Hughes? Mr. STONE. That is right, sir. Mr. TOLAND. It is Charles E. Hughes, Jr., law firm? Mr. STONE. Yes, sir. The CHAIRMAN. Talk a little louder, Mr. Witness. Mr. FRANCIS A. REED, 1 Wall Street, New York City, N. Y. DEAR MR. REED: I have investigated my employment status with the Lionel Corporation on a contingency-fee basis. The opinion of the lawyers whom I saw and of a commander in the Judge Advocate's Office, Navy Department, was precisely the same. A contractor may not hire the services of an individual for the purpose of obtaining orders through bribery, collusion, or fraud. However, he may hire the services of a representative on a contingency-fee basis, provided that the representative is not employed for the purpose of procuring one special order and his services then dispensed with. The Government does not object to a contingency fee where the individual is an accredited or recognized representative. When I asked for the definition of an accredited representative, I was informed it was one who was employed or is about to be employed as the company's agent for the purpose of receiving bids, orders, mail, etc. The commander also stated that there are hundreds of such representatives in Washington who, no doubt, work on a commission basis. He could not see why I raised the question even after referring him to paragraph 11. He said that paragraph pertains to lobbyists or lobbying activities. I hope I have made myself clear. I am more convinced now that a formal contract will dispense with the remotest reflection of anything that pertains to illegality or impropriety. Sincerely, A. H. STONE. Had there been any question or discussion prior to the date of this letter that your representation of the Lionel Corporation to get Government contracts, defense contracts, was improper or illegal? Mr. STONE. Except that I had not known the proper procedure insofar as the Navy Department was concerned, and I was very much concerned to know just what the proper procedure is. It was that that I went to the Judge Advocate's office to determine. Mr. TOLAND. Who were the lawyers that you discussed it with? Mr. STONE. Oh, there are various ones back home, I will say, Mr. Toland. Mr. TOLAND. You were here in Washington. Mr. STONE. I was here then, and I could go home many times on Saturday night and Sunday. Mr. TOLAND. Did you ever discuss it with any lawyers that practice here in this city? Mr. STONE. Yes; there was one attorney here. I could give you his name later, Mr. Toland; I just don't remember. Mr. TOLAND. You can't think of it now? Mr. STONE. No, sir. Mr. TOLAND. I offer the letter I just read in evidence. (The letter of September 9, 1940, was received in evidence and marked "Exhibit No. 419.") Mr. TOLAND. That was also while you were still an employee of the Federal Housing Administration? Mr. STONE. Yes, sir; prior to November 20 that was. Mr. TOLAND. On August 12 you wrote this letter, did you not, to Mr. Caruso: Mr. M. CARUSO, The Lionel Corporation, 23 Sager Place, Irvington, N. J. DEAR MR. CARUSO: I saw Commander Mather this morning and he informed me that the Naval Observatory does not have an alidade nor does he know where you might see one. He suggested that you communicate with Commander Sheppard or Mr. Taylor, of the Brooklyn Navy Yard, from time to time and inquire of them whether a vessel in port has an alidade which you might see. It is also possible that they may receive instructions to permit you to take it off the boat for a limited time. What is an alidade? Mr. STONE. It is an instrument, a very precise instrument, as a matter of fact, on which binoculars are placed on top and screwed on. Mr. TOLAND (continuing): Commander Mather further informs me that he has not received the letter from Commander Sheppard. Immediately upon its receipt he expects to place the necessary machinery in order so that formal bids may be obtained. He believes that no company other than our own will make a bid for the alidades. Incidentally, Commander Mather is writing to Mr. Taylor requesting him to give you the latest plans and specifications. I know that you have seen the plans called mark II. The plans of the Naval Observatory are called mark IV. However, the commander claims that there is very little distinction between them. I suggest you inquire of Mr. Taylor whether the plans he has given you represent the final drawings. I do not expect to report anything of importance for a period of 2 weeks. The Navy Department will not be ready to receive bids on anything in which we might be interested until that time. Sincerely, A. H. STONE, (The letter was received in evidence and marked "Exhibit No. 420.") Mr. TOLAND. Had you obtained prior to August 12 copies of any plans or specifications and submitted them to this company? Mr. STONE. Prior to August 12? Mr. TOLAND. Prior to August 12. Mr. STONE. I wouldn't remember that, Mr. Toland. Mr. TOLAND. You have no recollection of that. You wrote that letter, didn't you? Mr. STONE. Yes, sir; I did. The CHAIRMAN. Mr. Toland, let me ask you, the purpose of all these letters is to show that while he was employed in the F. H. A. he was working for this Lionel Corporation at the same time? Mr. TOLAND. Right. The CHAIRMAN. He admits that. Mr. TOLAND. I would like to get these letters in as well, because they are of importance, and I would like to have them identified. What was the total amount of contracts that you obtained for the Lionel Corporation from the Navy Department? Mr. STONE. Up to date? Mr. TOLAND. Yes. Mr. STONE. Approximately $9,000,000, about $3,000,000 of which will be canceled. Mr. TOLAND. So that you have been responsible for and a representative in connection with the obtaining of $6,000,000 worth of Navy orders? Mr. STONE. I would say approximately that; yes, sir. Mr. TOLAND. Navy contracts. On that you have an arrangement, a formal contract, of $150 a week and 5-percent commission? Mr. STONE. That is correct, sir. Mr. TOLAND. I show you a copy of the contract, dated November 20, 1940, and ask you if, on the day that you submitted your resignation, which took effect the following March, this agreement was not signed and entered into between the Lionel Corporation and yourself, and if it does not provide that you are to receive $150 a week and 5 percent of the total amount to be paid by the Government on account of contracts for materials and supplies for the Navy Department. Mr. STONE. That is right, sir. Mr. TOLAND. I offer it in evidence. (Photostat of contract, dated November 20, 1940, was received in evidence, marked "Exhibit No. 421," and is printed in the appendix of this volume.) Mr. TOLAND. Prior to the execution of that contract, while you were still employed by the Government and on active duty-I show you a letter, dated August 20, 1940, or I will read it, to Mr. Caruso: I have received the following information in regard to the float lights: The Triumph Explosive Co. of Aberdeen, Md., received the last order approximately 2 months ago. There were two other companies who bid for this order. The contract price was approximately $2 per unit. Commander Mather is still awaiting the final revised plans on the alidades which he expects to receive within a few days from the Brooklyn Navy Yard. I have a luncheon appointment with the commander on Friday and may receive more information for you then. Sincerely yours. You wrote that, didn't you? Mr. STONE. Yes, sir. (The letter was received in evidence and marked "Exhibit No. 422.") Mr. TOLAND. On August 20, didn't you also write this letter to Mr. Caruso? Under separate cover I sent you drawings and specifications for float lights. Where did you get those? Mr. STONE. If that is what the letter says, I probably got them from the Navy Department. It is the only place to get them. Mr. TOLAND. I am interested in knowing whether you received specifications for the binnacles. About a month ago I wrote requesting that you draw up a contract for my services. I know that you have as much faith in me as I have in you. Your spoken word will always be as impressive with me as your written one. However, we are only human, and if not entirely for our own sake, we should consider the interests of others by having a thorough understanding in writing. In addition, I have previously requested that you ask the Navy Department, care of Bureau of Supplies and Accounts, to send me all mail, correspondence, bids, and contracts. By doing this we can save considerable time. As an example, I would have received a call last week in reference to float lights and could have sent you drawings and specifications some time ago. As you probably know, Commander Mather has nothing to do with this order, but he can be of assistance to me. Since the bids are to be opened August 30, I do not have much time to lay my ground work. Therefore it is advisable to send a letter to the Bureau of Supplies and Accounts for our mutual benefit. I have already arranged a meeting for tomorrow morning with the commander in charge of float lights. I shall get all information possible and write you immediately. I know now that the order will be for 60,000. May I again remind you about my contract and the letter to the Bureau of Supplies and Accounts. Hadn't you an oral understanding with the Lionel Corporation prior to August 20, when you wrote this letter? Mr. STONE. Yes, sir. I said previously, Mr. Toland, we had been negotiating, but had not Mr. TOLAND (interposing). But didn't you have some understanding? What did you mean when you said, "Your spoken word will always be as impressive with me as your written one. However we are only human, and if not entirely for our own sake, we should consider the interests of others by having a thorough understanding in writing"? Didn't you have an understanding with them at that time? Mr. STONE. I would say that we did have; yes, sir; merely awaiting a written contract. Mr. TOLAND. What was the understanding that you had prior to that letter? Mr. STONE. The same as the contract discloses, I would say. Mr. STONE. Yes, sir. (The letter was received in evidence and marked "Exhibit No. 423.") Mr. TOLAND. On August 25, didn't you write this letter to Mr. Caruso? I won't read it. I will offer it in evidence. Will you look at it and see if you didn't write the original? Mr. STONE. I believe that is it. (The letter of August 25 was received in evidence, marked "Exhibit No. 424," and is printed in the appendix of this volume.) Mr. TOLAND. Then on September 11, didn't you write another letter to Mr. Caruso and in the last paragraph state, "I am thoroughly convinced that we are all within the bounds of law and ethics when paying and receiving a contingent fee, and would therefore appreciate receiving a formal contract"? Mr. STONE. That sounds very familiar to me; yes, sir. (The letter of September 11 was received in evidence, marked “Exhibit No. 425," and is printed in the appendix of this volume.) Mr. TOLAND. Didn't you on September 15 write this letter to Mr. Caruso? Mr. MARIO CARUSO, The Lionel Corporation, Irvington, N. J. DEAR MR. CARUSO: I am quite certain we shall receive the order for binnacles for 4-inch compasses under schedule No. 2979, lots No. 420 and 421. There is a total of 265 to be made. Ritchie & Sons bid $15 and cannot make delivery for 8 months. If you recall, I bid $10 instead of $5. You will have to get busy on these binnacles and 71⁄2-inch compasses because the Bureau of Navigation will require samples. The company which received the order for float lights was the Triumph Explosive Co. This information does not assist us in obtaining a source for the explosive required. The catalog price on alidades in the Bureau of Supplies and Accounts is $250. This price has been carried over since 1928 and, therefore, is not of much consequence. Should you be in the vicinity of the Brooklyn Navy Yard, you might again verify their latest price. You must write a letter to the Bureau of Supplies and Accounts giving your reasons and requesting an extension of the delivery date on the 40 binnacles, order No. 75761. Enclose a copy of a letter sent to you by Commander Twomey, dated September 3, 1940. Mr. Bonanno has the original letter. I have made the necessary appointments on Tuesday for Messrs. Bonanno and Ferri. I expect them to call me at Metropolitan 5349 at 8 a. m. this Tuesday. May I repeat how important it is to me to have our contract signed as soon as possible as the delay is preventing me from making a definite decision. shall appreciate hearing from you soon. Sincerely yours, You wrote that, didn't you? Mr. STONE. Yes, sir. A. H. STONE. I (The letter was received in evidence and marked "Exhibit No. 426.") Mr. STONE. There is one explanation I would like to make, Mr. Toland, and that is in reference to the price of that binnacle. That was an error that was made. As a matter of fact, we have about 6,000 of them on order and our price today is $12.25, and that was an error made in quoting $5. That would have been a tremendous loss to the company. |