The administrator of the General Services Administration secretly decided in 1970 to order GSA to lease an 18-story Philadelphia office building for $52 million from a friend and former law partner of then Senate Minority leader Hugh Scott (R-Pa.), even though other bidders offered GSA lower rental prices.
Robert L. Kunzig, who was GSA administrator from 1969 to 1972, made the decision after Sen. Scott gave the lease deal his "strongest recommendation" in a letter of Kunzig, according to a 900-page summary of an FBI investigation of the transaction. A copy of the FBI summary was recently obtained by The Washington Post.
Kunzig, who is now a U.S. Court of Claims judge here, had worked earlier as Sen. Scott's administrative assistant and was named GSA administrator by President Richard M. Nixon on Scott's recommendation.
The building Kunzig decided to lease for federal government offices was the Gateway Center at 36th and Market streets in philadelphia, which was built by Herbert A. Fogel, the friend and law partner of Sen. Scott, and Fogel's uncle, Matthew B. Weinstein.
When interviewed by the FBI, Sen. Scott said he "believed" Fogel had asked him and others to write letters recommending that Gateway Center be awarded the GSA lease.However, Scott also told the FBI that he did not believe he knew at the time that Fogel and his uncle were the developers of Gateway Center.
The GSA lease of Gateway Center also was recommended by Arthur F. Sampson, who then worked for Kunzig as head of GSA's public buildings' service. Sampson had been brought into GSA by Kunzig, who had worked with him in the Pennsylvania state government. Sampson was later named to succeed Kunzig as GSA administrator by President Nixon.
Both Kunzig and Sampson had also been political and social friends of Herbert Fogel for years, according to the FBI report. They stayed several times at Fogel's home while the Gateway Center lease negotiations were being conducted, the FBI found.
On the basis of the FBI investigation, the Justice Department concluded in 1976 that Fogel and Weinstein had made false statements to the government in lease negotiation documents. Letters and contracts had been backdated to make it appear that they had been submitted by the deadline other bidders had to observe, according to the FBI summary.
The FBI also found that the Gateway Center developers had met none of the five lease conditions - known as "five points" - required by GSA regulations. They did not have a building permit, financing, a valid construction contract, ownership or control of the land, or a design for the proposed building when they were awarded the lease, according to the FBI summary.
However, the Justice Department decided not to indict anyone in the case. Although it is a criminal offense to knowingly make false statements to the federal government, Justice officials concluded the false statements were not technically "material," and therefore not the subject for a prosecution, because GSA might have awarded the lease to the same developers anyway.
"You had GSA officials knowing the true state of affairs (that the developers did not meet the five conditions) and helping them to get the lease," said Mark M. Richard, then and now the chief of the fraud section of the Justice Department.
"Why did (the GSA officials) condone this? That's where you need evidence that they received a bribe," said Richard, who was one of those who recommended against an indictment. "The case is such a terrible example of GSA's problems. GSA and the contractors were papering their own file . . . The case cried out for prosecution. It was horrendous."
Richard W. Beckler, deputy chief of the fraud section, acknowledged that he was one of two Justice officials who recommended that the case be prosecuted. "It was close," he said, adding that prosecution was made more difficult by the fact that the statute of limitations had already expired.
When Justice decided in 1975 to investigate the Gateway Center lease, the Philadelphia office of the FBI complained that it had asked for approval to conduct the investigation more than two years earlier. Despite repeated follow-up requests by the FBI, Justice did not give the go-ahead until five months before the statute of limitations was to expire, the FBI said.
Citing the "many prominent people" involved and voluminous records that would have to be examined, the Philadelphia FBI office said in a teletyped message to FBI headquarters: ". . . it is near impossible to complete this most important investigative matter prior to the statute running."
Nevertheless, the FBI conducted an extensive investigation that eventually produced 67,000 pages of documents, including a proposed indictment.
According to the 900-page summary, the FBI found that:
Matthew B. Weinstein, Fogel's uncle and the only other owner of the Gateway project, told one of his former partners in the presence of a secretary that he was not an owner but was really handling the investment "for the politicians" for a 6 percent fee, according to FBI interviews with the partner and the secretary. Weinstein recently told a reporter that he never made such a statement.
After a Jack Anderson column suggested that GSA was concealing evidence in the case, FBI agents searched GSA headquarters offices at 18th and F streets NW and found a memorandum, marked "confidential," from Kunzig to Sampson in a locked safe in Sampson's former office. The memo, together with the statements given the FBI by the GSA official who transmitted it, show that Kunzig decided to award the lease to the Gateway developers in November 1970, while GSA was still negotiating with other landlords offering space at lower prices. It also shows Kunzig met with William A. Meehan, the Republican Party leader in Philadelphia to discuss the lease.
Kunzig, upon taking over at GSA in 1969, announced to high-level GSA officials that "politics is the name of the game." Kunzig's clerk at the U.S. Court of Claims in Washington said Kunzig would not comment on this or anything else because it would be improper for a judge to do so.
Kunzig and Sampson orchestrated support for the award to the Gateway Center developers from federal agencies that did not want to move to a location so removed from the center of Philadelphia. They also hired a lawyer to help landlords offering space in buildings not yet constructed, like the Gateway Center project, to meet GSA's lease conditions. At the same time, GSA excluded most developers competing with the Gateway Center and offering existing buildings to GSA by specifying the minimum size of the floors GSA wanted.
When a disappointed competitor filed a protest over the Gateway Center lease award with the General Accounting Office, the audit arm of Congress, GAO agreed that Gateway Center developers bidders had failed to comply with the five-point lease conditions. The GAO declined, however, to rule the lease invalid because, according to the FBI summary, GAO had decided that GSA "misled" the developers by approving the documents they submitted. "We kissed it off; we ducked the issue," GAO Associate General Counsel Stephen P. Haycock told the FBI.
Hugh Scott, who is now Washington counsel at Obermayer, Rebmann, Maxwell & Kippel, the Philadelphia law firm where Fogel was formerly a partner, said last week he sent the letters to Kunzig recommending the award of the GSA lease to Gateway Center at the request of Philadelphia "civic leaders." When interviewed by the FBI, Scott had said he believed the request came from Fogel.
Scott, whose law firm handled some of the Gateway Center developers' legal work, said he was not aware that GSA awarded the lease to Fogel and Weinstein despite GSA's receipt of lower rental offers.
"I received a flat sum from the law firm (while he was in the Senate), which did not increase or decrease depending on how many clients the firm had," Scott said.
Referring to the ownership of Gateway Center, Scott, who left the Senate in 1977 after deciding not to stand for re-election, said, "I had no financial interest in this . . . I engaged in no wrongdoing."
Arthur Sampson, who is currently working for the owner of another building he awarded a GSA lease to while he was at GSA, acknowledged that his role in awarding the lease to the Gateway developers was "very heavy."
"The Justice Department went through it with a fine-tooth comb and said there was nothing there," Sampson said. "The whole thing was based on what Mayor (James) Tate (of Philadelphia) had recommended . . . He said (award the lease to) Gateway, even though it cost more."
The lease of the Gateway Center building had its origins in 1969, when Richard Nixon, two months after becoming president, issued an executive order designating Philadelphia as "headquarters city." This meant that federal agencies with socio-economic objectives should consolidate their Philadelphia offices in one location.
In August, 1969, Matthew Weinstein met with new GSA administrator Kunzig in Washington to discuss the possibility of providing GSA with the office space it needed, according to the FBI summary. At the meeting, which took place five months before GSA publicly announced its need for office space in Philadelphia, Kunzig told Weinstein how much space was required and suggested he ask the heads of federal agencies to petition GSA for a building where Gateway Center was to be built.
President Nixon visited Philadelphia for a day in November and had lunch with Weinstein and Fogel, whom Nixon Later named to a federal judgeship. Fogel returned to private practice this year. Nixon also toured the University City Science Center, where Gateway Center was to be built.
At the same time, lower level GSA officials had begun negotiations to acquire more space for federal agencies in the Curtis Building, where some agencies already had offices. However, Sampson stopped those negotiations, claiming the price of $7.22 a square foot to be charged by owner John Merriam was "exorbitant." A year later, Sampson recommended awarding the Gateway Center lease at a price 62 percent higher than Merriam's office.
GSA informed the public of its need for more space in January 1970 in newspaper advertisements. At the same time, Kunzig asked GSA's chief realty officer in Philadelphia to meet with Weinstein about leasing the proposed Gateway Center building, according to the FBI summary.
Although GSA asked in its advertisements for office space that could be occupied by December 1970 it did not award the Gateway Center lease until several months after that and the building was not occupied until 1973. According to the FBI summary, the reason for the delays was that the Gateway Center developers encountered problems complying with GSA's "five point" lease conditions.
The purpose of the conditions was to insure that developers offering space to GSA had planned to construct the office buildings regardless of whether they won a GSA lease. Obtaining the necessary documentation - ple - is costly and time-consuming.
As the lawyer hired by Kunzig to help the developers meet the conditions worked on the problem, GSA postponed the date for when final offers had to be submitted. Sampson eventually set Sept. 30, 1970, as the deadline after being told Weinstein was making progress in meeting the five points.
However, none of the conditions for the Gateway Center lease were actually met in time, the FBI found.
In November 1970, a Gateway Center officer asked Provident National Bank to prepare a letter backdated to Sept. 30 to show that the developers had construction financing.
The bank complied, the FBI found.
To show that the developers had a construction contract, they signed an agreement with Weinstein's own company, Rosemont Construction Co., which was not in the construction business and did not build the building.
Even though the developers did not yet own the land where Gateway Center was to be built, they showed GSA an agreement that purportedly would give them control. However, that document was also backdated, the FBI found.
Although the developers submitted plans for their building, they bore little resemblance to the structure that was eventually constructed. Valid building permits also were lacking, the FBI found.
Loy M. Shipp Jr., who headed GSA's leasing program then and now, was in charge of making sure that the Gateway Center developers had complied with the five requirements, the FBI was told.
However, Shipp told the FBI that he felt his role was only to collect the documents and forward them to Hugh H. Brister, then an assistant general counsel at GSA.
Brister, in turn, said he only reviewed the material sent to him and felt Shipp knew more about the conditions than he did.