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. I 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. (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. 70533-42-vol. 6- -3 Mr. TOLAND. Didn't you write this letter about the same subject on the 24th day of September? THE LIONEL CORPORATION, New York City. DEAR MR. COWEN: My attention was called to a recent letter which you sent to the Bureau of Supplies and Accounts, referring to a deficit in the amount of a check submitted for binnacles. This was due to an increase of 100 percent of the original bid of $5 which I raised to $10 after investigation. You will not be required to submit an additional check, as I have already taken care of that situation today. In the future I suggest you send me a copy of all correspondence in order to avoid embarrassment, and I can then take each matter up personally. I am enclosing a form of annual bid bond which should be presented to your surety company. The original, together with the affidavit, must be returned to the Bureau of Supplies and Accounts. A copy may be retained for your files. It is advisable to obtain this bond as soon as possible, because quantity bids are about to appear. You will receive a confidential bid for percussion primers within a day or two which should be forwarded to the plant as soon as possible. In the absence of Mr. Caruso, I presume you have been unable to fix a definite date for drawing up our contract. This is very important to both of us if I am to continue. There is much work to be done, but I cannot give my entire effort to the task while my contract is still held in abeyance. Your immediate reply will be very much appreciated. Sincerely yours, You wrote that, didn't you? Mr. STONE. I believe so. A. H. STONE. (The letter was received in evidence and marked "Exhibit No. 427.") Mr. TOLAND. You were an active employee of the Federal Housing Administration? Mr. STONE. Excuse me? Mr. TOLAND. You were an employee of the Federal Housing? Mr. STONE. I would say, Mr. Toland, I can't very well say that I was active at that time, by taking proper leave. Mr. TOLAND. What date was that letter? Mr. HINKEL. September 24. Mr. TOLAND. You record shows that you were not on annual leave on September 24. Mr. STONE. It might have been telephone conversations as well. Mr. TOLAND. While you were at the department? I show you a photostat copy of a letter dated November 6 and ask you if you wrote that letter? Mr. STONE. I believe so. Mr. TOLAND. I offer it in evidence. (The letter dated November 6 was received in evidence, marked "Exhibit No. 428," and is printed in the appendix of this volume.) Mr. STONE. Then I show you a letter addressed to you, dated November 19, the day before you submitted your resignation from the Federal Housing, saying: DEAR ALEX: You will please find enclosed herewith our check to your order in the amount of $150. This represents your first weekly payment as per contract. The next check will be mailed to you on Friday, November 29, and thereafter on every Friday. By the way, Friday is our usual day for drawing our special treasurer's checks. I certainly hope you will not starve between the receipt of this check and your next one. Frankly, we should have held this check up until Friday, November 22, but I am sending it to you only to prevent you from reversing telephone charges. Please be advised that under separate cover I have mailed to you a quantity of our letterheads, bearing your name and address, together with a similar number of envelopes. Please make it your business to send us a copy of every communication you send out on any of these letter sheets. We require these for our files. I just received a notice of award from the Navy Department, which reads as follows: "Schedule No. 3661-ships, lots 770, to be delivered to navy yard at Norfolk, Alidades, Battle Lookout, priority rating A2 assigned this contract." You will note, however, that no quantity of alidades is specified. This refers to Bid No. 250. Are we to assume that 770, under the word "lots," refers to the quantity? Very cordially yours, Signed by the president, You received that, didn't you? Mr. STONE. I believe so; yes, sir. THE LIONEL CORPORATION. (The letter was received in evidence and marked "Exhibit No. 429.") Mr. TOLAND. I show you copies of other letters and I would like you to identify them as being either sent by you or received by you. Mr. STONE. Mr. Toland, photostat copies were made. Mr. TOLAND. Photostat copies. Mr. STONE. That is perfectly all right. Mr. TOLAND. I would like you to look at them. (Letters between Mr. Stone and the Lionel Corporation dated November 24, 1941; November 25, 1941; December 15, 1941; no date; December 15, 1941; January 17, 1941; January 22, 1941; no date to Mr. Caruso; June 24, 1941; May 27, 1941; May 21, 1941; August 1, 1941; December 26, 1941; no date to Mr. Caruso; February 11, 1941; and May 20, 1941; were received in evidence, marked respectively "Exhibits Nos. 430 through 445," and are printed in the appendix of this volume.) The CHAIRMAN. In reference to the previous letter where you got your first check for $150. That was when you moved from Rhode Island Avenue to Sixteenth Street? Mr. STONE. No, sir. The CHAIRMAN. All right now; go ahead, Mr. Toland. I would like for you to clear up for the committee at this point Mr. STONE (interposing). Representative Vinson, my earnings had been more than $150 by that time. The CHAIRMAN. As long as you were with the F. H. A. you were in the more moderate neighborhood? What is the law with reference to contingent fees? I would like for the committee to be advised about that right at this time, and what is the law with reference to an employee of the Government representing someone doing business with the Government. I remember there used to be a statute that anyone in the Treasury Department couldn't go back to practice in income tax business until after a lapse of 2 years, but I don't know what has happened since. What is the law with reference to contingent fees, because that looks like one of the points in the case? Mr. TOLAND. The problem is a confused one. There is not any definite ruling or decision, except that the Supreme Court has said that |