In July, while you were an employee on active service, didn't you make this statement? Please send me a letter stating that I am your sole representative authorized to negotiate with the Government in placing orders with your company. In my conversation with Mr. Caruso last Friday, he said that he would forward such a letter at my request. It is necessary that I have it in my possession in order to transact my business. Sincerely yours, A. H. STONE. Attached thereto is a letter dated July 22, 1940, from you to Mr. Caruso, which is as follows: I presume my brother has informed you of my conversation with him in reference to our bid for binnacles. The delay at the present time is being caused by certain formalities in their justifying the acceptance of our bid over that of the lowest bid. However, I am informed that I shall receive definite word no later than Saturday of this week. Upon receipt of the order I shall wire you and let you know when I expect to be in New York. I wrote to Mr. Marfuggi last week requesting him to send me a letter of authority from you. I have not received it yet, and perhaps you prefer waiting until I arrive in Newark so that we can go into this matter more thoroughly. Sincerely, Didn't you write both of those communications? A. H. STONE. (The letters referred to were received in evidence and marked "Exhibit No. 416.") Mr. TOLAND. Do you have any explanation you want to make to this committee that while you were an employee of the Federal Housing Administration you were representing this company? Mr. STONE. I was not representing them in a formal manner as yet. Mr. TOLAND. What do you call that? Mr. STONE. That was during our negotiations. Mr. TOLAND. What do you call that? Mr. STONE. Of course, I had taken some annual leave any time that I had done any business. I think my record would show that. Mr. TOLAND. Does your record show that in July of that year you took any annual leave? Do you have any recollection of taking any annual leave? Mr. STONE. Do I have that? Mr. TOLAND. In July. Mr. STONE. I wouldn't know offhand, but it would seem to me that I probably did. Mr. TOLAND. Do you think the fact that you might take annual leave as a Government employee-the fact that you are not at your place of business on that day, permits you to represent a company at the War Department or Navy Department; just the fact that you are on annual leave? Mr. STONE. Mr. Toland, I hadn't definitely made up my mind as to what I was to do. Mr. TOLAND. You were seeking a contract with this company? Mr. TOLAND. And at the same time you were looking after their interests here? Mr. STONE. I was also giving my time to my Government. I wasn't compensated for any time I took for annual leave. Mr. TOLAND. Oh, yes; you were. Mr. STONE. The time I took for annual leave? Mr. TOLAND. Of course, you are compensated when you take annual leave. Mr. STONE. Oh, no, sir, Mr. Toland. Mr. TOLAND. You mean your pay doesn't run when you get the regular accrued annual leave from the Government? Mr. STONE. I don't mean that, sir. I mean when I take any time off, I am not compensated for that. Mr. TOLAND. What is your best recollection as to any time that you took off during the month of July 1940? Mr. STONE. It is rather difficult for me even to recollect it. I wouldn't remember how much time I had taken off. I believe I had taken some time off. I believe that you will find I had taken more time off probably in August. Mr. TOLAND. As a matter of fact, you only took 1 day in August. Mr. STONE. Probably that was all that might have been required. Correspondence could have been done in the evening. Mr. TOLAND. It is your position that while you were an employee of the Federal Housing that it was perfectly proper for you to represent this company for the purpose of obtaining a Government contract, whether you were on annual leave or whether it was during the time that you were supposed to be working? Mr. STONE. Mr. Toland, under the circumstances I believe I would say "Yes," because I had anticipated leaving the Government service. There had been many nights that I had worked late night after night in its formative stage, and many visits that I had made into the field for which I was not compensated. Mr. TOLAND. Didn't you write this letter on the 13th of July to Mr. Marfuggi? DEAR PHIL: Three bids were offered for binnacles. They were as follows: Leitz Co‒‒‒ Max Kuhner___. $15, 388 15, COO 10, 452 The Leitz Co. cannot deliver for 6 months. The Kuhner bid is so low that it may not be considered. I shall know more about our position next week. I have an appointment with the officer in charge whom I shall see by Wednesday. As I have stated in a previous letter, I believe we ought to obtain our share of orders within a month or two. I feel you should know that I have laid a certain amount of ground work in order to get some business from the Army and Air Corps in the event the Navy cannot supply us with sufficient orders. However, the Navy is not amenable to releasing part of the factory at this time for any other branch of the service. I am constantly stressing the necessity for knowing how much space the Navy will require, especially since we are anxious to set up our machinery in the new addition in order to produce the greatest efficiency. We happen to be one of a number of manufacturers who are in the same situation. I shall write you again on Wednesday when I expect more information on our bid for the binnacles, as well as the Navy's decision on time fuzes. Sincerely yours, Did you write that letter? Mr. STONE. It sounds very familiar to me. A. H. STONE. (The letter was received in evidence and marked "Exhibit No. 417.") Mr. TOLAND. With whom did you lay the ground work? What did you mean by that statement that "I feel you should know that I have laid a certain amount of ground work in order to get some business from the Army and Air Corps in the event the Navy cannot supply us with sufficient orders"? Mr. STONE. Well, sir, I had seen some officers at the Navy Department and wanted to get an idea of what business the Lionel Corpora tion might be able to transact. Mr. TOLAND. The Lionel Corporation up to this time had been engaged in making trains, toy trains? Mr. STONE. That is their business. Mr. TOLAND. That has been their business? Mr. STONE. Yes, sir. Mr. TOLAND. It has been their business for years? Mr. STONE. Yes, sir. Mr. TOLAND. One of the largest, if not the largest, in this country if not in the world. Is that right? Mr. STONE. Yes, sir. Mr. TOLAND. And they were interested in getting war contracts! Mr. STONE. Yes, sir. Mr. TOLAND. You were interested in getting war contracts for them? Mr. STONE. Yes, sir. I wouldn't say war contracts, because I hadn't even give war a thought at that time. Mr. TOLAND. Defense contracts. Mr. STONE. Yes, sir. Mr. TCLAND. You were interested in getting them? Mr. STONE. Yes, sir. Mr. TOLAND. On the 13th day of July, while you were an employee of the Federal Housing Administration, you wrote the letter that I have just read to you. Isn't that right? Mr. STONE. I believe so. Mr. TOLAND. On August 6—the record shows that you were not off this day, either-you wrote this to Mr. Caruso: DEAR MR. CARUSO: I have inquired about the refund of your check in the amount of $3,750. There are two ways in which you can expedite the return of this check. If at least two officers of your company are willing to guarantee the order personally, the Navy Department will be willing to investigate you. If their investigation is favorable, they will determine the extent of your surety on future bids as well as the recent one. The other plan, which I believe is more feasible, is to obtain an annual bid bond. This may be procured through a reliable bonding company. It is suggested that you furnish a bond of $5,000 for the present. This will cover us up to a $20,000 bid, and we may increase the amount of the bond in proportion to the increased bid. If you will furnish this bond immediately, I shall endeavor to obtain your check. The delivery date of all orders is computed from the day of receipt of the formal contract. In other words, the order for binnacles must be delivered 120 days after receipt of the formal contract, not the award. A performance bond may be ordered upon receipt of the contract. Both types of bonds are very reasonable where the company's financial status is unimpaired. If you will communicate with my brother, Murray, I am positive he will get you all necessary information through the bonding company he represents. Please see enclosed form, page 3, paragraph 23. I saw Mr. McLaine, of the Judge Advocate's office That is Mr. McLaine of the Navy Department, isn't it? 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 com pany's agent for the purpose of receiving bids, orders, mail, etc. The commander also stated that there are hundreds of such representatives ir Washington who, no doubt, work on a commission basis. He could not see wh I raised the question even after referring him to paragraph 11. He said tha paragraph pertains to lobbyists or lobbying activities. I hope I have made myself clear. I am more convinced now that a forma 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 tha: 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 of 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, te 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 å limited time. What is an alidade? Mr. STONE. It is an instrument, a very precise instrument, as s matter of fact, on which binoculars are placed on top and screwed or 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. Indidentally, Commander Mather is writing to Mr. Taylor requesting him to give |