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EXHIBIT

J l.o L, '7

APPENDIX H

RICHARD FOWLES SCH eOULE


OF CLIENT CHECKS WrrHHELD
BY QUARTER FOR 1990

(ACTUAL)

u.s. v ARMSTRONG, FOWLES


CR94-0276 - CAL

GOVERNMENT EXHIBIT 375


rlll/!Wflr:t1 , \" IAII' I ~ II • \;'rI((1" r-l-l I;" I (! :""f" l " ' -,..,
]STDU.4RTER FEDERAL CHECKS

AMOUNT DATE
om.ONlCI.E 364.089.41 1114 ?~-
R.R. DONNEU.EY 845,69247 _~ -I
,_.,.-rJ'"'
81.s,513.13 Ccy/q~~".'-f;
J'. 1/14
1/17
796,1\lB.ISil.) 1/22
FEDERAL EXPRESS 6,435,925.48 ) " ,, ", 1/14
12,213,531.87 f,; S;;: .!!~ ;-'i:C:, '<S 1/16
6,99S,43j.76) 1J22
CASTLE &; COOKE 924,758.70 ~- l/14~~l

STANFORD HOSPITAL 1t 597,764.94 v ]/14

SIGNbl1CS 1,324,243.09 L '~"J ~'>';" '/7'.1', ".0" 1114


1,451,933.33 \ . -.' 1/28
BLUE CROSSITEXAS 1,0331357.54.. 1/16
RlCKETI & COLMAN 841,865.84__ 1/16
RICE UNlVERSITY 691,482.36 .
UNGERMAN BASS 678,~02.81 1/17
SCOTrPAPER 3,89ti.467.91Ls) /;,!.)/;. (J J i~ ?) 1118 .1l :'DD ,I ;;'jj'

1,149,~51.06.J~--' J )
l.I2S D~ S';;" ? :J-;.J-

SIN'Al HOSPITAL If2~~J54B..57_ 1118


~:~~--

ENSRCORP. ~51t204.88 __. 1118


ADVOSYSTEM 800,~9.83 . 1/18
S.D. WARREN' 1,541,110.66!, J ,'7;:) ,:p Jjj 1118 ,pe.-'-L
631,S02.«U I / co 0- __ .•

MABON NUGENT 89O,667.7S _.' . 1/22


PAClFIC PRESBYTERIAN 930,410.97 '- tn.21~

.
GLENDALE ADVENTIST
.
486,970.51. 1f2j

MONROE SYSTEMS _ 323,581.82 --- 1l2S


KENDAll. CO. 612,078.02__. 1J28 'pet

POLYTECHNIC UNIV. .s00.769.31-. 1/28


50,570.223.00
.JII) J 0 L}J ~. () I, . '1 55j \ o~ ~J [}\.
J i",i.:J

'1f /1: CD <) 0, (I c J. "~) i -r: ' _i


April 26, 1990

Mr. W. Gale Lawler


State & Local Tax Manager
R. R. Donnelley & Sons Company
2223 King Drive
Chicago, II... 60616-1471 .

Dear Gale:
I sincerely appreciate having the opportunity to present Hamilton Taft &
Company's product to R. R. Donnelley & Sons Company. Based upon our
discussions of Donnelley's present paytoll tax system, I am submitting, a business
recommendation to make your payroll tax function more effective.
As a sound and. proven provider of payroll tax services, with over a decade of
experience, Hamilton Taft & Company will provide these primary benefits to R. R.
Donnelley & SODS Company:

• timely and accurate deposits to all Federal, State and Local tax
agencies;
a cost and time efficient method of gathering, sorting and reporting
payroll tax data; and,
• efficient, confidential management of all aspects or your payroll taxes.

I look fonvard to developing a solid, long term business relationship with R. R.


Donnelley & Sons Company.
Please do not hesitate to call me if you have any questions.
Sincerely,

Dora Dunn
Account Executive

Enclosures

One Market Plaza • Spear Street Tower • 32nd Floor • San Francisco, California 94105
415/896-6300 800/231-2929 FAX 415/974-1755 000034
',-

TABLE OF CONTENTS

TABS
PRESENT AND RECOMMENDED SYSTEM 1
FEE ESTIMA.1E -: 2
H.AMILTON TAFT & COMPANY RESPONSffill.ITIES .3
R. R. DONNELLEY & SONS COMPANY RESPONSmll.ITIES .4

H.AMILTON TAFT & COMPANY BENEFITS 5


PRESENT/RECOMMENDED ANALYSIS 6
TAX SERVICE AGREEMENT 7
DISASlER REeD 'VERY PLAN 8

Hamilton Taft & Company - 04/26/90

000035
,
, I
...
-,

PRESENT SYSTEM

1. Obtaining Tax Data ~.

Presently, Shirley Hamilton is fully responsible for gathering tax data from
Donnelley's McCormick and Dodge payroll system and for preparing
Federal, State and Local tax deposits. Shirley receives summary information
for the hourly payrolls from the divisions and reconciles to the McCormick
and Dodge summary. Because the payroll system provides only cumulative
tax totals, separate tallies are manually calculated for state and "Great
SocietYl. deposits by their respective due date. H Shirley is absent on a
Federal, State or Local Due Date, special arrangements must be made to
insure timely tax deposits.

2. Reconciliations and Returns


At the end of each quarter, Shirley reconciles the State and Local deposits
and adjustments against the quarterly totals from Donnelley's payroll system.
Federal deposits and adjustments are reconciled by Paul Meloy. Once the
reconciliation process is completed, Federal, State and Local returns must be
filed.

3. Tax Correspondence
All correspondence relating to payroll taxes is currently being handled by
Paul and Shirley. Donnelley is fully liable and responsible for any penalties
and/or interest that occur as a result of "fat finger"·· in filing or depositing
payroll taxes.

4. Reporting Changes in Tax Regulations

The p'ersoDS responsible for the day-to-day payroll tax issues are also
responsible for maintaining compliance with the Federal Government and
the State Agencies.

5. TIme and Labor Cost


It presently costs Donnelley in excess of $60,000 to handle payroll taxes, not
including the cost incurred in cutting checks for the tax deposits.

• "Great Society Deposits refers to Eighth Monthly Deposits


... "Fat Finger" refers to error or error correction

000036 .
- - - - - - - - - - - - - - - - - - - - -
RECO:MMENDED SYSTEM

1. Obtaining Tax Data ~.

Due to the use of direct transmission of tax data Donnelley will simply
transmit tax data from Donnelley's system directly to Hamilton Taft &
Company. Once the information is received by Hamilton Taft & Company,
we prepare deposit coupons and debit the exact Federal, State and Local tax
liability amount from Donnelley's designated account.
There are three modes of direct transmission:
Mainframe to Mainframe:
All data is transmitted directly from Donnelley's payroll system to
Hamilton Taft & Company's payroll tax system
Magnetic Tape:
Donnelley downloads payroll tax data onto magnetic tape, and
Hamilton Taft & Company transmits the tax data from the tape into
our payroll tax system.
Personal Computer via Diskette:
Hamilton Taft & Company will provide Donnelley with a diskette in
our data input format. Donnelley will download, or manually enter.
the tax liabilities on a per payroll basis, and transmit the data to
Hamilton Taft & Company via modem.
We recommend the Mainframe to Mainframe method of transmission.
2. Recon~iliation and Returns
At the end of each quarter, Donnelley will provide Hamilton Taft &
Company with quarter-end information generated from their payroll system.
Once we receive this information, Hamilton Taft & Company will complete
all reconciliations and file all necessary returns. Hamilton Taft & Company
does not file alien taxes for our Clients.
3. Tax Correspondence
Hamilton Taft & Company will respond to all tax correspondence resulting
from the period Donnelley contracts our services. When you receive an
inquiry from a tax agency, simply forward it to Hamilton Taft & Company.
We will do the necessary research. including contacting the particular tax
agency for clarification. When we respond to the tax agency regarding an
inquiry, the original is sent to the agency, a copy is sent to Donnelley and
Hamilton Taft & Company retains a copy for our files.

000037
',8
I

1111

4. Changes in Tax Regulations


As tax regulations change, so do the parameters around which Hamilton Taft
& Company works on behalf of our client. Hamilton Taft & Company will
report all pertinent changes in tax regulations to Donnelley on a quarterly
basis. In additio~ Hamilton Taft & Company's Technical Services
Department will proVide bulletins throughout the quarter.
5. Management Reports and Audit Trails
Hamilton Taft & Company is dedicated to keeping Donnelley informed of all
• activity performed by us on your behalf through detailed management
reports and copies of Federal Tax Returns. The titles and frequencies of
standard repo~ Donnelley will receive are as follows:

Report frequencY
-. Electronic Funds Transfer Notified one day prior to
Advice Federal Tax Due Date
indicating amount of
• transfer.
State Income Taxi City Income Quarterly in lieu of
Tax Report copies of State and
Local deposits.
Quarterly Reconciliation Quarterly; reconciliation
of reported liabilities
vs. liabilities
collected.
Custom reports will be designed to suit your management requirements.

000038
:D
I
,
III

R. R. DONNELLEY & SONS COMPANY


II

FEE ESTIMATE


QUARTERLY RECONCn.iATIONS:

• 3 FEDERAL RECONCILIATIONS

3 FUTA RECONCll.JATIONS

22 STATE RECONCILIATIONS

29 SUI RECONCILIATIONS

8 LOCAL RECONCILIAnONS

QUARTERLy PAYROLlS:

f) PAYROLLS PROCESSED

QUARTERLY TAX DEPOSITS:

42 FEDERAL

3 FUTA

221 SIT

29 SUI

45 LOCAL

MONTHLY FLAT FEE $ 250.00

ONE TIME CONVERSION CHARGES

TOTAL CONVERSION FEE $ 1,725.00

PRICING IS BASED ON VOLUMES AND INFORMATION PROVIDED BY YOUR FIRM.


CHARGES ARE BASED ON THESE TRANSAcrION VOLUMES. THE FLAT FEE IS BASED
ON FUNDS TRANSFER OCCURRING ON FEDERAL TAX DUE DATE HAMll..TON TAFI' &
COMPANY RECONCD..ES ALL FEDERAL, STATE AND LOCAL TAX TYPES ON A
QUARTERLY BASIS AND Fll..ES RETURNS WHERE APPUCABLE. THIS FEE ESTIMATE
IS GOOD FOR 30 DAYS.

Hamilton Taft & Company04j26/90

000039
..
HAMILTON TAFT RESPONSmILITIES

1. Hamilton Taft is committed to providing an on-site representative for


conversion of the payroll tax data to ensure all necessary documentation is
received from Donnelley for implementation onto the Hamilton Taft tax
service. In addition, -Hamilton Taft & Com~any will provide the necessary
resources to construct an interface with R. R. Donnelley's payroll system.
The conversion process will take approximately two (2) days.
2. Hamilton Taft will assign a Client Relations Rel?resentative and a Tax
Specialist to Donnelley. The individuals assigned will have background and
familiarity with similar large corporate accounts as well as Federal, State and
Local tax filing 1?towledge.
3. Hamilton Taft will set up a master file for Donnelley which will include the
Employer Identification Number and filing requirements for Federal, State
and Local tax agencies. Along with the master file, a payroll calendar for
each payroll frequency will be maintained. In the event the payroll data is
not received on the appropriate paydate, Hamilton Taft's Data Control staff
will notify Donnelley m an effort to provide timely service.

Using the payroll tax information, Hamilton Taft will issue a Preauthorized
Debit (ACH) to Donnelley's specified bank account in the amount of the
accrued tax liabilities. This transaction will be completed in accordance with
the availability schedule as applicable to Donnelley's bank location. The
transfer will thus be initiated to ensure presentation on the Contractual
Transfer Date. The transfer will be issued for all accrued Federal, State and
Local tax liabilities. A separate debit will be issued for monthly service fees.
Hamilton Taft's system will accumulate the payroll tax data on a per payroll
basis and issue :payments according to the due date schedule for each taxing
agency. Assummg all payroll tax data has been received on time, Hamilton
Taft accepts the responsibility to pay the appropriate taxes and will assume
the liability for penalties associated with that panicular deposit. .

6. Payment of the Federal taxes will follow the 95% safe-haven deposit rule.
Hamilton Taft will deposit the 5% deposit amounts on the appropriate tax
due date.

7. Hamilton Taft will file all employer related quarterly, monthly and annual
payroll tax reports for Federal and State agencies on a timely basis. All
payroll related tax returns including unemployment returns will be filed. A
file copy of all Federal returns will be submitted to Donnelley. In lieu of file
copies of State and Local returns, a report detailing tax return information by
state agencies will be submitted to Donnelley.

8. Hamilton Taft will respond to all taxing inquiries on behalf of Donnelley. A


copy of ~ correspondence will ,be.forwarded to Donnelley.
/1JtJ Y.4'''l /../.11 :9,N/... "Ji'dd:t-iJ zj'lklh\ fJ//;fj.'!;:".-"

0000
.-
R. R. DONNELLEY & SONS COl\fPANYRESPONSmILmES

1. Donnelley will deliver summary tax reports detailing all necessary payroll tax
information to Hamilton Taft. This detail should be sent in a format that is
easily understood by !!oth parties and iden~es ~ .wi~olding t~ liabilitic:s
and taxable wages by· State and Federal taxIng JUTISdicuons. This format 15
required and must be received by Hamilton Taft on or before paydate for
each payroll.
2. Donnelley will fund Hamilton Taft via Hamilton Taft generated transfer with
good funds no later than the Contractual Due Date for all tax liabilities (FIT,
FlCA, SIT, FUTA, LOCAL, SUI and SDI). In the event that Donnelley does
not honor the n:ansfer, a $45 non-sufficient fund charge plus loss of interest
to Hamilton Taft, calculated at the prevailing Bank of America Corporate
lending rate, will be billed to Donnelley. Hamilton Taft will not assume
liability or responsibility for taxes represented by said failure of such transfer.
-

SUMMARY OF HAMILTON TAFT'S BENEFITS

1. Donnelley will have an 8ssi~ed Tax Specialist responsible for their tax needs.
This experienced Tax Specialist will be Donnelley's personal contact within
the Hamilton Taft organization.

2. In addition to a Payroll Tax Specialist, a Client Relations Representative will be


assigned to Donn~lley.
The Client Relations Representative will function in a pro-active mode while
monitoring all of Donnelley's activities.

3. Hamilton Taft will not debit Donnelley's account for payroll taxes until the
contractual debit date.
The contractual debit date allows Dannelley the opportunity to hold their
monies, thus maximizing interest earned until the payroll taxes are actually
due.

4. Hamilton Taft will be responsible for all tax correspondence relating to payroll tax
payments and filings.
Donnelley will be required to notify Hamilton Taft of the notice and forward
the notice to Hamilton Taft immediately for resolution.

5. Hamilton Taft maintains a $50 million Fidelity Bond per transaction per Client.
Donnelley can be assured that their money is secure.

6. Hamilton Taft does not batch tax payments.


A separate check is printed for each tax payment. This is done for the Client
in order to provide a clear and concise audit trail.

7. Hamilton Taft has a proven track record in dealing with high tax liability Clients.
-
Donnelley can be assured that Hamilton Taft has a high level of expertise in
dealing with the complexities of large corporations.

8. Hamilton Taft is the oldest and largest specialized payroll tax processor in the
United States.
Donnelley will receive the benefit of Hamilton Taft's employees 400+ years
of payroll tax experience at their disposal.

000042
J
R. R. DONNELLEY & SONS COMPANY
PRESENT SYSTEM/RECOM1-ffiNDED SYSTEM ANALYSIS
Hamilton
Donnelley's Taft's
Present Recommended
Activity System System

Receive Salaried Payroll Snmmary System HTe


Receive Hourly Payroll Summary System HTe
Receive Hourly Payroll Back-up Manual HTe
Information
Extract State Sub- Totals Manual HTC
From Cumulative Total
Extract "Great Society" Sub-Totals Manual lITe
From Cumulative Total
Reconcile Hourly Summary Manual HTe
To Back-up Information

Request Check/wire Transfer System HTC


Maintain Deposit Calendar Manual UTe
Receive/Forward Check On Due Date Manual HTC
Perform Quarter-End Reconciliation Manual HTC
Complete Quarter-End Returns Manual HTC
Maintain File of Returns Manual HTC
Answer Correspondence Manual HTC

Check and Approve Returns Manual HTe

This process represents a direct annual manpower burden of at least 1.5 full time
employees. The accompanying costs detailed here exclude executive review, payroll
interface, accounting interface, materials t and "fat finger". The annual salary and benefits
cost to R. R. Donnelley & SODS Company Tax Department is $62,712.00.
ASSUMPTIONS
$15.00 per hour per employee
2080 work hours per year
34% added expenses for benefits
$15.00 x 2080 hours per year = $31.200 + 34% = $41.808
$41.808 x 1.5 employees = 562.712

000043
TAX SERVICE AGREEMENT

This Agreement is entered into as of by and between


R. R. Donnelley & Sons Company, 2223 King Drive. Chicago. IL 6061&-1471. hereinafter referred to as
Client, and Hamilton Taft & Company, hereinafter referred to as Hamilton Taft, having Its principal place of
business at: 1 Market Plaza, Spear Street Tower - 3200 Aoor. San Francisco, California 94105.

WHEREAS, CUent desires to engage Hamilton Taft to perform tax services with respect to employees of
the Client, and WHEREAS Hamilton Taft desires to perform such services.

NOW THEREFORE, in consideration of the mutual agreements set forth below, the parties hereto agree as
follows:

1. DUTIES OF HAMILTON TAFT: Hamilton Taft will deposit the required tax payments on behalf of the
Client in the appropriate amounts and manner InclUding payment by check where allowed to the
appropriate depository on or before the statutory deadlines. Hamilton Taft will file all Employer related
quarterly. monthly, and annual payroll tax reports for Federal and State agencies on a timely basis.
Provided that al/ tax data has been received accurately and timely, Hamnt~~I~f1,aC.9~Q~Jt~Jt!..~~P..Q~~~~~ity ~
!t?J?~y_!tIe aQP!.Qp-~,~,~~_~es and will assume the liability for payment for penalties associated with that
part~~!JJ.~!...~ Hamilton Taft will, within a reasonable time after Hamilton Taft has received the same,
provide responsive information to tax agency notices as they pertain to deposits or returns made by
Hamilton Taft on behalf of the Client. As a condition to Hamilton Taft's duties, Client shall forthwith upon
request provide written assurance of Client's intent to satisfy its obligations hereunder in a timely fashion.

2. DUTIES OF CUENT: (1) The Client shall deliver to Hamilton Taft payroll tax summary reports detailing
all appropriate tax figures as necessary for Hamilton Taft to perform its duties under this Agreement.
Payron Tax Summary Reports shall be delivered at Client's expense to Hamilton Taft on or before client's
paydate in a mutually agreeable format. Client's failure to submit Quarterty Tax Reports timely will result in
a late charge of $25 per day (quarter-end reports are due by the 15th of the month following the end of the
quarter). (2) Client shall r~tmB.Hr,.§~ Hamilton Taft with good funds no later than 8:00 AM PST (Pacifi~
Standard Time) on Federal Tax Due Date via Hamilton Taft generated Electronic Automated Clearing
House (ACH) item in the amount of 100 percent of accrued tax liabilities: FIT. FICA EE, FICA ER, SIT.
LOCAL, SUI, FUTA. (ShOUld transfer date fall on a weekend or holiday, reimbursement shall take place
on the preceding California banking day.) (3) In the event that Client falls to provide Hamilton Taft wtth
good funds as set forth above, Client shall reimburse Hamilton Taft upon demand with good funds plus
interest at the current prime rate. In addition, a $45 non-sufficient fund charge (NSF) per Item will be
applied in the event a transfer is not honored by ClientJs bank. (4) Client will grant Hamilton Taft Power of
Attorney in order for Hamilton Taft to represent the Client on payroll tax related matters. (5) Any errors or
omissions contained in submitted documents are to be brought to Hamilton Taft's attention within three
business days.

3. COMPENSATION OF HAMILTON TAFT: For performance of its duties hereunder, Hamilton Taft shall
receive: (1) a non-refundable Installation fee in the amount of $1.725.00 due upon CHent's acceptance of
this Agreement; (2) any benefrts accruing from proper use o~lient'~funds; (3) and, a monthly service fee
of $250.00. collected by Hamilton Taft via ACH generated monthly.

4. CUENT REPRESENTATION: Client represents and warrants to Hamilton Taft that the contents of aU .
payroll tax summary reports and other information delivered to Hamltton Taft hereunder are true and
correct, and further agrees that Hamilton Taft has no affirmative duty independently to verify the accuracy
~f the contents of such reports and other Information.

000044
-
Tax Service Agreement
Page 2

5. INDEMNIFICATION: Each party hereto shall indemnify and hold the other party harmless from and
against any and an expenses. damages. claims, suits, actions. judgements and costs, Including without
limitation reasonable attorneys' fees aris~g out of such fi~ party's breach of this Agreement.

6. FIDEUTY BOND: In order to protect Oient against any dishonesty or fraud by employees of Hamilton
Taft, HamJlton Taft shall maintain during the tenn of this Agreement fidelity bonding. The Client shall be
entitled to 60 days written notice from the insurer of any cancellation of such fidelity bonding.

7. MISCELLANEOUS: This Agreement constitutes the entire Agreement between Client and Hamilton
Taft with respect to the sUbject matter and cannot be modified except by a written agreement by the
parties. The execution of this Agreement supersedes all prior negotiations. understandings and
agreements. whether oral or written. This Agreement may not be assigned to persons who are not
employees of Hamilton Taft. Any notice required to be given shall be In writing, postage prepaid, by
certified mail to the address of the other party at its address herein above first written. This Agreement
shall be governed by and construed in accordance with the intemallaws of Callfomla. In the event a party
commences litigation relating to this Agreement. the prevailing party shall be entitled to recover
reasonable costs of litigation. including attorney's fees.

8,~:RdD~$~i.RMlf;1'~n'Q~'=::tth.E:!,term>ofthis,:Agr~E:#meot:shaflb,?g~I1., ora and shall


remaiffifffDJI'forcefa'fI'd'''effeCt LJntilfteffilinateaf;{i)TD;,,]~iitier:;""""after/an:initial;90,'DEi"s;}of:arj"'reas6n:ornO"'"

~!KIII~~II_lii~IJi;lf'fi~;i.~f~iiilr~~~
,~~Rt'~z~1)2:;"e,~~:re~.{!,~~ Failure to provide the 90 day written notice set forth in subsection (I) above will result
'jn$l:OOO"'canceliation charge. Notwithstanding anything to the contrary contained herein, Paragraph 5
hereof shall survive termination of this Agreement
IN WITNESS WHEREOF. the parties have caused this Agreement to be executed by their duly-appointed
representative.

R. R. Connelley & Sons Company Hamilton Taft & Company

By:
--------------- By:
------------------
-------------
Signature:
--------------
Signature:

Title:
""---------------- Title:
----------------
Date:
--------------- Date:
----------------

000045
tCl)r lLakcslbr f)rrs$
R·R·DoNNELLEY tr SONS COMPANY
2223 satITH MARTIN LtITHER KING DRIVE
CHICAGO. ILLINOIS 60616
312·326-8039

~'
~
JACK L. SIMMONS
.ASSISTANT TIlEASl:REIt

June 29, 1990

Ms. Elizabeth Magee


Director of Market.iIq
Hamilton Taft & campany
One Market Plaza
Spear street Tower
32m Floor
San Francisco, california 94105

Dear Ms. Magee:

Enclosed are both copies of the Tax service Agreement with IJr:I signature. Please
return signe:i copy for rtrj files.

JIB/dInt

Enclosures

u.s. v ARMSTRONG, FOWLES


CR94-0276 - CAL

GOVERNMENT EXHIBIT 1172


000055
-
TAX SERVICE AGREEMENT

This Agreement is entered into as of July 1, 1990 by and between R.R. Donnelley & Sons Company,
2223 South Martin Luther King Drive, Chicago, IL 60616-1471. hereinafter referred to as Client, and
Hamitton Taft & Company. hereinafter referred to as Hamilton T~ having its principaJ place of business
at: 1 Market Plaza. Spear Street Tower - 32nd FOOr. San Francisco, California 94105.

WHEREAS, Client desires to engage Hamilton Taft to perfonn tax services with respect to employees of
the Client, and WHEREAS Hamilton Taft desires to perform such services.

NOW THEREFORE, in consideration of the mutual agreements set forth below, the parties hereto agree
as follows:
1. DUTIES OF HAMILTON TAFT: Hamilton Taft will deposit the required tax payments on behaff of the
Client in the appropriate amounts and manner including payment by check where allowed to the
appropriate depository on or before the statutory deadlines. Hamilton Taft will file all Employer related
quartet1y. monthly. and annual payroll tax repons for Federal and State agencies on a timely basis.
Provided that aJl tax data has been received accurately and timely. Hamilton Taft accepts the
responsibility to pay the appropriate taxes and will assume the liability for payment for penalties
associated with that particular deposit. Hamilton Taft will provide any necessary consolidatkKl of
divisionaJ or special payroll data necessary for the performance of it's services. Hamilton Taft will, within
a reasonable time after Hamilton Taft has recerved the same, provide responsrve information to tax
agency notices as they penain to deposits or returns made by Hamilton Taft on behalf of the Client. As
a condition to Hamitton Taft's duties. Client shall forthwith upon request provide written assurance of
Client's intent to satisfy its obligations hereunder in a timely fashion. Hamilton Taft will provide to Client,
at Client's requeSt. copies of filings, inquiries and responses to such. funds transfer summaries,
summary listing of filings and funds applications, and any other such familiar documentation as may be
requested. At the time that Client is ready to develop an interface between Client's mainframe computer
and Hamilton Taft's computer, Hamilton Taft will provide assistance in the development and testing of
such interface.

2. DUTIES OF CUENT: (1) The Client shall deliver to Hamitton Taft payroll tax summary reports
detailing all appropriate tax figures as necessary for Hamilton Taft to perform its duties under this
Agreement. Payrqll Tax Summary Repens shall be delivered at Client's expense to Hamilton Taft on or
before client's paydate in a mutually agreeable format. Client's failure to submit Quarterty Tax Repons
timely will result in a late charge of $25 per day (quarter-.end reports are due by the 15th of the month
following the end of the quarter). (2) Qlient shall reimburse Hamitton Taft with good funds no late( than
9:00 AM PST (pacific Standard 1ime) on-FecierafTax Due Date via Client generated wire in the amount
of 100 percent of accrued tax liabilities: FIT, FICA EE, FICA ER, SIT, and LOCAL (with the exception
of Indiana and Kentucky). And, Client shall reimburse Hamilton Taft with good funds no later than 9:00
AM PST (pacific Standard Time) on FUTA/SUI Tax Due Date via Client generated wire in the amount of
100 percent of accrued tax liabilities: SUI and FUTA. And, Client shall reimburse Hamitton Taft with
good funds no later than 9:00 am. PST on Indiana and Kentucky's respective SIT Due Dates via Client
generated wire in the amount of 100 percent of accrued tax liabilities: Indiana and Kentucky SIT.
(Should transfer date fall on a weekend or holiday, reimbursement shall take place on the preceding
California banking day.) (3) In the event that Client fails to provide Hamilton Taft with good funds as set
forth above, Client shall reimburse Hamilton Taft upon demand with good funds plus interest at the
current prime rate. In addition, a $45 non-sufficient fund charge (NSF) per item will be applied in the
event a transfer is not honored by Client's bank. (4) Client will grant Hamilton Taft Power of Attorney in
order for Hamitton Taft to represent the Client on payroll tax related matters. (5) AfrJ errors or omissions
contained in submitted documents are to be brought to Hamilton Taft's attention within three business
days. -

000056
-
Tax Service Agreement
Page 2

3. COMPENSATION OF HAMILTON TAFT: For performance of its duties hereunder, Hamitton Taft
shall receive: (1) a non-refundable installation fee in the amount of $1.725.00 due upon Client's
acceptance of this Agreement; (2) -!JOY ben~~ accruing from proper use O! qlient's _~.I!ds: ( 3) and. a
monthly service fee of $00.00. -_. ----........ -.---..---.-- .. --- .--- "--- . --. ,,- - -- .. -. .. '... -

4. CUENT REPRESENTATION: Client represents and warrants to Hamilton Taft that the contents of
all payroll tax summary reports and other information delivered to Hamilton Taft hereunder are true and
correct. and further agrees that Hamilton Taft has no affirmative duty independently to verify the
accuracy of the contents of such rspans and other infonnation.

5. INDEMNIFICAnON: Each party hereto shall indemnify and hold the other party hannless from and
against any and all expenses, damages. claims. suits, adions. judgements and costs, including without
limitation reasonatlle attorneys' fees arising out of breach of this Agreement.

6. FIDEUTY BOND: In order to protect Client against aIrf dishonesty or fraud by employees of
Hamilton Taft. Hamilton Taft shall maintain during the term of this Agreement fidelity bonding. The
Client shall be entitled to 60 days written notice from the insurer of any cancellation of such fidelity
bonding.

7{ MISCELLANEOUS: This Agreement constitutes the entire Agreement between Client and Hamilton
Taft with respect to the subject matter and cannot be modified except by a written agreement by the
parties. The execution of this Agreement supersedes all prior negotiations. understandings and
agreements, whether oral or written. This Agreement may not be assigned to persons who are not
employees of Hamitton Taft. Any notice required to be given shall be in writing, postage prepajd, by
certified man to the address of the other party at its address herein above first written. This Agreement
shall be governed by and construed in accordance with the internal laws of California In the event a
party commences litigation relating to this Agreeme~ the prevailing party shall be entitled to recover
reasonable costs of litigation, including attorney's fees.

8. TERMS & TERMINATION: The term of this Agreement shan begin on Juty 1.1990 and shall remain
in full force and effect until terminated (i) by either party after an initial 90 days for any reason or no
reason upon 90 days prior written notice or (iQ by either party upon ten (10) days prior written notice
that the other party is in breach of its obligations under this Agreement, unless such breach is cured
wnhin such 10 day period. Failure to provide the 90 day written notice set forth in subsection (i) above
will result in $1,000 cancellation charge. Notwithstanding anything to the contrary contained herein.
Paragraph 5 hereof shall sUlVive termination of this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly-
appointed representative.

R.R. Connelley" Sons Company Hamltton Taft It Company

By: Jack L. Simmons By:


---------------
Signature: (k{bi~) Signature: (JVIJ:J~ J. !~~
Ii
Trt~: ~istant Treasurer Title:
--------------
Date: June 29, 1990 Date:
·---------,000057
'.

r_ '_ ..... ,_. - -. '. ~~' '... ::' .~ ~ ~ :.. ' •• ~ _. : '~.J ~ .'~ .," .~: •• ~,r.-";f~':;'1:;

July 5.1990

Mr. Barry A Beroth


Assistant Vice President. Finance
ConnectIcut General Ute Insurance Co
Hartford. CT 06152

Dear Barry:

Upon my return to Hamilton Taft. , was given a copy of your letter of October 24.
1988. to Ms Fran Bartlett regardIng a claim for $26.695 payable to Hamilton Taft
This claim was for payment of penalty/interest to tax agencies on behalf of
CIGNA subsequent to your ownershIp but for the period covered by your
ownership The claim was returned stating that you required the following
information/documentation for each ctaim.

(1) A copy of the bill from the collecting tax agency indicatIng the interest
and/or penalties due;

(2) An exptanation of why Hamilton Taft was at fautt;


(3) A copy of the check paid to the ~ or,outside agency. and
(4) An Indication of the abate efunds due Hamilton Taft by the client or
outside agency. 0
I have had my staff resear e of these carefully I and the attached package is
a resuft of that work. In ea set there is no abatement or refund expected
from the governmental agency or the client In eight cases. the bill from the
agency is not available from our files. I dId attach. however, a copy of all the
documentation supportinQ each of these claims. For those payments which
were made because Hamilton Taft was late in depositing. late in paying, or late in
flUng, the error resulted from Hamilton Taft problems in·house.
Those payments which were made because of penalty/lnterest was ~oo
insignrt'lcanttl, the followlng Information was used to make that determinatIon.

~~l
$1904 for researching the problem;
$2 52 for prepanng the check. and
~3) $1.14 for correcting the client ledger.

The claim represents penalties and interests paid on behalf of CIGNA


subsequent to your ownership. The total of $22.70 was considered the absolute
minimum to research the problem and pay the penalty/lnterest. This policy was
initiated when Hamilton Taft was owned by CIGNA. and the amounts indicated
above were updated in early 1988. The enclosed claim for $27.36048 is a partial
claim only. and represents figures through June 1988 A subsequent claIm will
follow to represent a total for penods after June 1988.

One Markel Plaza • Spear Street Tower • 32nd Roor • San Francisco. Cahfornla 94105
4151597-6500 8001231-2929 FAX 4151974-1755

b7C
.$pvs"'tA-- - ~ew~ ~~~y~ ()f{l~: 1------,1 ~t.jl;)~ &L-- ...,/ft' -/ ~"I.p
....
,

.'
i
Mr. Barry A. Beroth
July 5.1990
PageTwQ

information which you re;:~~
~~ontact
If I can be of further assistance. me so that I may provide that

~'8J Sincerely,

Albert L May
Vice President, Operations
AMJdwb
Enclosure
cc: Connie C. Armstrong. Jr.
Richard A Fowles
r .--

.',
Rblllte'lllentl'l ef lI'd
Chedc BUt frcrrt Uhy MTC was Ekpeeted frClft
PerfDd Nl.JTber P8YfJbte To Clfmt ~t Agency MtrJched et Feult Cov't/Cl (ent

late f@e .0
'986"
1986/1
599ft
5743
NY Dept. of Labor
DI~trtct of Columbfft
t~rYf!fon
Gm to'1'.,
Int~l
,~.
PheMm8t!Utfeels 10.00
76.33
Z,105.53
Yes
Yes
T~
Lete depMft
let~ ~ft
"0
No
19861Z 6251 1"5
198613 6615 till Hamle too Aerolt!!t 21.31 Yes Calculatfon errDr IltJ
1986(3 6511 Phfl~tphfD VerB8t~, lne. 6.41 YH Too h"lgnlffetmt 10
1986'4 6645 Cotoredo BID RIKI LnborlltorfH '0.00
194.n
Yes
Yes
tet@ deposIt
lete deposit
"0
No
1986/4 56'4 ArirMUI RhJ! Coose
1986/4 6209 Cestte &Cooke, lne. BLue Coos~
Bl\le' (iome
1Z0.18
873.50
Yes
YH
Lete ~'t
Lete ~tt
"0
No
1986/4 6135 IRS
1986/4 62'" cel Hom III toD bl~ Coose G~OW@rl (,07.7'5 No tete ~'t No
19M/' 6213 IRS Bl\le' Goose Growers '9.55 Y6 lete ~slt No
'986/4 6J02 IRS Ceble News N~two~k 6.54 TH Too "~s1gnlflcmt No
198614 6212 IRS Cable M!WS Network
Clstle & coote
6.54
"9.13
Tes
T!'II
Fllfng er-rDr
Imp-oper ffltr'lg
"0
No
1986/4 6159 I/esh'ngtcn
1986/4 62" II{S CCJM, Inc. 21.'0 yeg. Lete ~it No
1986/' 5611 Colarm D~. l8bor
of Coopervf.lon Phermeeeuticels 24.38 Ye!l Interest on I~r cft!'pM t t No
1986/4 57'90 EKe~lslor Steel rUTnaee E_eelsfor Steel Furneee 2.900~42 Yes Pll ned Peyment No
196614 5901 1\ ltrlO'S Intel 38.51 Yeg. Letl!! dI!po5tt No
196614 8043 IRS Intel 3,391.55 TH Lete depcr5ft No
1986/' 5351 'RS "8leol~ DeY. CO~. 5.21 T!! Too fn!lfgnlfh:ent No
'986/4 5574 IRs OCeanic Callfornle t,'11.90 Yes lite ~ t No
1986/4 5904 ttl 'note Drmeo 6.40 Yes Too fm'gnUfeent No
19M/4
198614
6405
5995
IRS
IRS
SClUth Iend Corp.
$ynte~ corp.
10.16
69~05
No
No
Interest on Penal ty
Lite peyment
"0
No
19M/' 5611 IRS $yntex Corp. 2.165.88 No Lete ~t of AdJU!tmPnt No
19M/4 6301 Geor-gle Dept. of L8bor Turner- Pr-ogr-1Jft'I $l!Ilet 7.09 TH Lete pa~t No
1986/' 60n krntuclty ~luyment "oodbr fdge 5.94 No lete dep)slt No
No
19B7/1 5786 Color-ado Dept. of lebor Arl.ter Mortg8ge Corp. 13.35 Tes Too ins ignU fclt'\t
195111 6'306 eel Uornte EDD AutomotlYe Uholl!9sler-s 7.0l Y6 Lete ~t: No
198711 6407 P1fehfglln MESC Ceble News Nl!!twork 220.55 No Er-ror In HTt calculation! No
1987/1 5615 Jml~aD~t. ofR~~ Cere unit of DuPege 24.0 Te-s Return filed lete No
19B1/1 5685 I'rllOM D~t. of R~ Hflll Bros. Coffee 57.90 T6 Lete p8'f'1"1!!"t No
1987/1 5646 Cot or-edo O~t. of Lsbor On L' M BU!' M8!I Syst!m!t 16.38 16 Accrued Interest "" "eMl tv No
1987/1 6304 NT Dept. of Lebor The CDCpl!r C~"les 54.91 Tes P&I for Incorrect R!1'Ortln9 No
1981/2 6070 T~ll:lI!l E""t~t ConmfS91on A~roJ~t General Corp. 6.00 Yes Unti~Ly r~9pon!e No
1987/2 53'9 Florfda ~loyme"t ~ES T~hnology 1.41 Yes Too (n!fgnlflcent No
1~a7/2 6656 Vlrg'nfa Oept. of Taxat'on A~r'C'an "tcrotystf'lT$ to.oo '(6 V1thhold,ng penaltY No
1981/2 6401 ftrl rons Economic: S~ur I ty Bllller Ff~ncl8l Ser-v. 25~71 ns Lete payment No
198112 644O IRS tomot •dated AITU'S~t to. 138.62 Te9 lneorr~t D~ft No
198112 5614 Incltent O~t. of Revenue Our-aee Il, J nc: • 21.89 lei! lete f'llng No
1981/2 5703 P~. OffIce of Emp. security Durk~ F~ F~ t .815.'6 Yes NTC Und!r-peld stIJ No
198112 5699 kDnn! O~t. of Re~ "'Ill Bros. Coffee 17.96 Yew Too fnstgnlflcent No
19B1/2 1949 NT 1exetton & Flnanee RKO Gener-.,l, Inc. Z.081.45 Te5 Lete pII)'T1'1l!f1t No
1981/2 557'9 TeXM E~I~t Cormt. vt I Bey F'oocH '53.41 TM MTC Cl@r,cal Er~~ No
1987/3 56CXt Comm. of th~ Sinttng Fund (kT) 1!t Net'onwi~ RBnk 8OB.85 Yes D~ freq. Incorrect No
198713 5903 NJ E""loyment SK. Dlv. ~E!: tedlno\ OCJY 12.93 'r~ Too tnsignlflcant No

~. -~---
l ,..-

..
Ab8t~tfR~f\M
Cheek 8fll frorll Why "TC NBS Ell:peocted frCll!l
P~r'od N~r P8Y1lbte To tlfmt AlIWlU'tt Ageney Attached It Fault Cov'tlC\ll!'tt

1987/3 510Z "'" h1lC8t 1or1 & R~ ~r'e8 ~t A'rll~


AmerIcan Colf corporation
6.33
1D.41 '"
T~
Too insignificant
Too fnsf9"fffcent
"0
No
198113 5698 IRS
'9B1f3 5741 t~8lth af p~ylY8nf8 CarteK Cor~r8tlon 33.21 fes leU pl!')1ftl!nt No
198713 6Z96 ct ty of Opel Ike City Ffnmce Ca. 20.. '8 '6 late ffllng No
1V0113 6411 w D~t of E~ See City Finance Co.
Cl~lend CLinic
1.68
, ,312.40
'M
T~
Lllte ~t
lllte IIdJustne1tl
"0
No
198713 8039 IRS
No
198713 5192 loulsfma Dept. of lebor tln-Ite !rdJ!ttrfe5 4.09 T~ Too Insfgnffltmt
198113 5796 Jlev Jersey Cygna Em!'rgy Sl!rvf ees '6.30 Ye Too fml9"ffJcltnt No
'987/3 5651 IndfllM D~t. of RI!"m'IlJ@ Durecet I, Ine. 22.2' T~ Set LIJ' Inc:orrect ly No
19B1{3 5652 Indtlml!l D~t. of Revenue Durllcetl , Inc. 183.55 Tes Set ~ tncorrectly No
'987/J 5650 Irdttme Dept of Revenue Durfu::ell, I Me. 22.25 Yes Incorreet Bl!'t up No
Incorrect ~'t f ~ No
198113
198113
61BO
5795
Indhma Dept:~ of R ~
"" J0b5 " Trelnlng
Duneell. lne.
Durkee"French Foods
186.41
1.18 '"
Tes Too fns'gnU ICM'lt MG
Wllconsfn "lIrB, Inc. Z1.69 Yes l8te ffltngl~ No
'9871l 5'80 No
'981{3 5906 Vermont Dept. of t""l~t Mllrs, Inc. 10.00 YH Penelty for late Ffllng
1981/3 5649 I ndl ens Dept. af Rev "ees~ $y9tfMJ 121.81 TH late ~ t cb! to bcInLJ! PR No
198113
198113
5512
5580
Indiana Dept. of Itevenue
City of Detroit
Hellll!5" "1I~eU5
Source Servt eee
12..27
31.22
'es
,~
Too 'nstgnffll:ent
Too ImtgnfflclIT1t
no
No
1987/3
'98113
5704
55'"
Sun DIInOr'ld C"OtH!!rl
IlHno\. O~~ of £~lcryment
Sun bfBmand Gr-owerl
,n\e~ rooM
5.86
19.48
'H
'8
LBte ~ft ~lty
Tao (ns(gnUI.cant
10
No
19811' 6612 City of Phll8detphfB lIt Netfonwtde BRrik 1.85
'" Too Inslgnlffc,,"t "0
1981/4 lim C0ll'lft0n'lle8lth of VA AeroJet GenerelCa~ 76.42 T6 Lete response to eo~res~e "0
19871' 5708 VT E~ !:ee Conrn Al truet F~el~t Sy1Iteftl!l
Amerlell Vest Alrl'nes
5."
6.17
Tell
Ves
100 fnsfgntffeent
Too Inslgnl flcent
No
No
198714 56B6 Al £conomlc seeurfty
19571' 5705 "" Tltlll .. Rev A~rf elm GOI f COrp ".61 Yes Too IMfgnffteent "0
'987/4 5707 IX £~l O)'ftf't Catm'I AmerIcan Gotf to~
Bto-R&d Leboretorles
8.93
51.17
T~
Tes
Too InslgnUlcltnt
lett! ~It
"0
No
198714 6166 PA Dept. of R ~
19871' 5993 Idaho Dept of Rev B11I:r.~r
G~e
FfMI1CUII ServtcH 11.10
89.18
Teg
YM
Too Insignificant
Inter6t due tD HTC ..merpe~t
"0
No
198714 5609 Al Economfc SecurIty Bl\le'
198114 59C>4 IR$ BLUC! Goo!e Crawerl 1.77 h!l Too Instgnl ffeent No
19871'
19871'
198714
1987"
6252
5840
6218
6619
NJ D~t Df LBbor
MS E""lDyment S!Curt ty
St. loufs City Cou~t
MN Job! & Trefnlng
Cenle & Coolte
ClIstle & Coolte
C8!tte & Cooke
CCIq'rehens' 'f'e care Corp
10.00
2.71
".50
6.51
YM
'Yes
es
Te!
Too Insfgnlfleant
Unde~t en
Court cO!ts
Too fnsignlfh::ent
sur
"0
No
No
"0
e-
19871' 5928 St. Louis City Court CDOPer C~le'!I 1l~00 Tes Court eMU No
19B7/4 5516 ME Ef!1)\oyment Securtty Duraeell, lne. 1D.00 T9 Too Inslgnlffeent No
'987/4 590> leu! ~~\oyment Ctmn cencarp 'F'e. 9.13 Tes lilte ~t "0No
19811'
'981/~
6513
5187
FL ~laylllent C~8tfon
C~81th of PA
Gr~8t
Intel Corp.
Yestem SIYfngg 5.~7
13.16
'6
Y6
Too IMlvnlffcBnt
Toa Insignificant Nfl
'9811' 5691 C~elth of VA Mllrl, lne. 10.00 Yes Too Inslgnfffcant No
1981/4
'Oe1/'
5700
6217
'''tlne Dept. af l8bor
Nev J~r!1!'Y
Mllr!!, tnc.
Ollwttt Teehneleg'"
'0.00
376.92
'6
'6
Ptn8lty far lllte Fllfng
D~!lt freq. Incorrect
No
Nl)
'981/'
198714
5900
5145
C~lItth of PA
Job ServtcH NO
SO' etIemfcal!
sO'S EMY Eng Dlv
15.54
1.72
'6
'Ho
~r~t
Additlon.,l trill( due
No
No
1987/4 5191 NO .Job Servl e~ $0$ Envfr~tal 1.1& Y6 Too fnslgnlflcant No
196714 6253 N,. E~l~t Seeurfty SOS Eml rDm'lent8l Engf~rfn 6." No Too '",fgntfteent tlo
'98114 5620 !;;tett! of N,. Ten 5.00 TI!ft leu fit ing fee No
,I
r-
..I

Abstfllftl!f'lt/Rertrd
t:h~~ IU tl f N:lffI ~ 1m: va! E.peeted from
Perfod "lJrb!r PlIYBble To Clfent A~t Ag~ Attaeh!d fit FRuit Goy't/Cllent

1ge1/4
198714
6515
51'0
1M E'""l~t Security
City of Columbus
The PullfMM e~
Voodbrfdg~ Holdings
5.99
66.'9
'H
'f~
Too fft!hrnffleant
Depo! , t freq. t neorrl!C t
IfD
No
198811 6562 &14 EIf1)I aym!'nt Sean- f ty American MlcrO!Y9tem5 1'.92 TM Filed v!fneorrect tete No
1988" 5801 vi ICon! In Dept of Rev Baleor Psvroll 'D.41 'fH Too tnsfgnlflum No
1988(1 6Jn "heansfn Dept of R~ Ihtleor Payroll 20.1D YH Lete ~'t No
'9M" 6S1a '\'X £'"Dloyment Comnl!,fan Sio·Red lllborlltor'K Z,.,q TM "f!ft~l ,e:t
C"ed't 1(0

.'
19M" 65'4 Idaho Dept of E~l oyment Blezer Flnanelal Services 6.56 T" Too Ing'gnfffcent No
1988f' 6511 HI E~lcyment Security BrlrtbMm IMtMl\'le'nts 2.78 Yes Additional tll~e9 du! No
1988ft 6362 NJ Dept of Lebor Brunsw1et Seat Co 10.00 fes ~rst8t~ Mages No
19M"
19881'
6443
6ZW
~'1lI Eq)\oyment
CeltfDrn(e EOD
Servh:8 e'tY F'N1~1! t~
Et!Ctronh: POW'!r Reseereh
••80
2".68
'Y"
No
filed "'fne~rect t8t~
DE3 filed lneorreoetly
"0
No
1988/1 6684 City of AUr'Or'8 First Hetlonw,de B8I"I1c 17.56 Yes lete filing If!)
'98811 B022 Cllttfornlll EOD Great We,tern SavIngs 3,667.91 Yes "TC error In pr~ratlDft No
'~B8" 6558 kanse! E"f)\oyment secur'ty Sc'ent'f'c tomputl!t Systems 1.06 Tes Lltt~ ~'t tiD
19M" 6360 LA Oept of Lebor SOS IntemstfONI 30.31 'f" Ff l~ vltrcorreet rate ND
'988" 6255 Oregan Dept af ReY The t~r c:~fl!S '0.20 Yes Lite filIng Ro
1988/1 5618 "erylend Treasury Voodleke corparetfon 41.29 f" LBtl!~t No

TOTAL S27,360."8
Balra1taeltWa• •


-302a (Rev 11-15-83)

16A-SF-2868

On January 3, 1991, CHIP ARMSTRONG held a meeting of


Hamilton and Taft in the corporate staff's office in
San Francisco and has held these meetings on a daily basis.
Accord~ng tq I ARMSTRONG resides at the Mark Hopkins
Hotel.
b7C
u.s. Department of Justice

Federal Bureau of Investigation

450 Golden Gate Avenue


In Reply, Please ReIer t.o San Francisco, CA 94102
FIle No February B, 1991

yt Ji$-~rtL! ,( ''''''! liI.'6enhtJ/


II nYlDIIIYt{J 1/~1fI '1 th11/1'!uM/ ')7l'N/U
Mr. william T. Mc Givern
united states Attorney
Vi,,1 /til II/If} flo,) '1 htloJ tJ ~~""illt1t .
Northern District of California
450 Golden Gate Avenue
P.O. Box 36055
San Francisco, California 94102
Attn: Mr. Michael Yamaguchi
Assistant u.s. Attorney
Re: Chip Armstrong, dba
Hamilton Taft and
company
#1 Market ~'Plaza,
Spear s~et Tower
r'

San Fr~cisco, Ca 94105


Possi~e Fraud by Wirer
Tax raud
00: San Francisco
Dear Mr. Me Givern:
Our office is SUbmitting the following information to
you for a prosecutive opinion as to 'whether a violation of
Federal Law has taken place.

The San Francisco Division first became cognizant of


the existence of Hamilton Taft and Company in August of 1988 when
I ~as interviewed at our office. I I was
the co-founder of Hamilton Taft and the other founder was one, -
I I who founded the company in ,1979. For your
information r Hamilton Taft is a service company which provides. a
b7C tax paying service on behalf of their clients. Hamilton Taft and
Company collects money from their ~us clients and in turn
pays their clients various feder~, state~ and local income
1 - Addressee 'nn,O '""\ I fJt, -~I~ 1
1 - 196A-2868 ~ I \ , 1/ 'V
PKM/sgc \
(2) \
Enclosures

b7C
D ~! 9(;ff- d15t.:~
/ q / .L1 - rJ':: - q '?:J c-< -:- I 11
taxes. Unemployment taxes and other various tax liabilities are
also paid by Hamilton Taft. When a company becomes a client of
Hamilton Taft, it notifies Hamilton of the companies payroll
dates, pertinent payroll information, the state in which the
company is required to pay taxes and the type of taxes which need
to be paid and on what dates. Hamilton collects monies from
these various clients and in turn pays the clients tax obligation
whether they be local, county, state and/or federal income taxes,
unemployment taxes and/or other tax liabilities.
b7C I I advised that when a client company enrolls
with Hamilton Taft, the company notifies Hamilton of its payroll
dates, pertinent payroll information the state in which the
company is required to pay taxes and the type of taxes which need
to be paid. The company then remits to Hamilton Taft on a timely
basis its payroll tax liability. The client company will also
remit funds to Hamilton Taft which would be used to pay the
aforernentionedtax liabilities. Historically the funds were
either wired to a Hamilton Taft Impound Account each time a
payroll is paid by the company or Hamilton Taft gains access to
the companies account by a depository transfer check.
Hamilton Taft was also responsible for filing all
applicable federal, state, county and local tax filing
information on behalf of its client and pay their various taxes
as they become due for the service Hamilton Taft charges its
clients a fee based on the number of times a client renders a
payroll and the number of areas taxing agencies which have to be
ultimately paid. Hamilton Taft also receives the interest in
which it can generate on the funds its clients deposit with it.
All this information is revealed to the client prior to a
contract being entered into by the client and Hamilton Taft.
This is also done orally by Hamilton Taft's sales
representatives.
As Hamilton Taft grew, the company became concerned
with what its liability may be with the funds they were
collecting on behalf of their clients. Because of this internal
concern in 1981, the firm contacted Baker and McKenzie Attorney's
at Law, 555 California street, San Francisco, California, 94104
and requested that this firm provide Hamilton with an opinion of
the characterization of the funds it was holding on behalf of its
clients for tax payments.
On October 29, 1981, Baker and McKenzie issued an
opinion that basically stated that at the time a payroll is
rendered, that is paid by the employer, the funds representing
the withheld taxes belong to the federal government. The
employer becomes a trustee for those funds and as such the duties
and responsibilities of a trustee are mandated under common law.

2
In addition various state and federal law mandates how a trustee
needs to act in his capacity as a trustee.
~
Although Hamilton Taft is not the employer but an ...::
"'.

independent agent, it was the opinion of Baker and McKenzie that


~
~ r
::l

~.F"'-l;;'--
the funds are still trust funds and the holder of these funds () I~~~ s~

(Hamilton Taft) still bears the responsibility of a trustee. ~\. -~


~ ~~
S::'~ ~
When interviewed by the Federal Bureau of Investigation ~~ ~
(FBI) I
in August of 1988, I went so far as to stat,e that some <:i::i:::-
individuals representing clients have stated that the collected j.~;.;.~
funds need to be put in a bank account separate from other funds ~ ."~
~ of that particular entity. In addition~ during his tenure at lJ~
"'~~, Hamil ton Taft, Hamil ton ,Taft considered themselves to be trustees "'-t..it ~i
, for those funds on behalf of the various .
taxing agencies. :L:"t>:;;
~ "~ i.'

By way of background information, I I


stated that in ~\ ~
August of 1984, Hamilton Taft was sold to the Cigna.Corporation ~~
the large insurance conglomerate out of Philadelphia, "~
Pennsylvania and Hartford, Connecticut. At that time, Hamilton
Taft had approximately 900 corporate clients and was -handling on
'"a daily basis, approximately $100,000,000 in client deposits.
According to a personality conflict developed
b7C between himself and one formally Executive Vice
President of cigna Corporat~on W 0 was placed by that corporation
as the person in charge of Hamilton Taft's operation. Because of
tbe persynality differences be~enl landl lonel I
I Jwas appointed as President of Hamilton Taft.

Shortly after leaving ,Hamilton Taft in the latter half~\


of 19~5,1 ,1stated he became aware th. at Hamilton Taft stc;rted 1
to lose approx1mately $100,000 per month. He noted that whlle he (.
was President of Hamilton Taft, that the company although not
highly profitable, was able to stay in a slight profit position.
He understands that Hamilton Taft hired another President but'the
company continued to lose, money in C.igna and soon thereafter
began to look for a buyer for Hamilton "Taft. In December of
1987, Maxphrama Incorporated of Dallas, Texas paid $500,000 to
Cigna Corporation as a down payment for the purchase of Hamilton
Taft. On February 29, 1988, Maxphrama Incorporated completed 'its
purchase of Hamilton Taft from Cigna Corporation. / .
____~'also stated to onel I former Executive
Vice President in charge of operations for Hamilton Taft provided
him with the foregoing information. r--1allegedly toldl Ion
February 27,1988 that~ I ~iml ! transfer
$5,000,000 by wire transfer to a brokerage house in New brl~ans,
Louisiana called the Howard Wiel Labluisse Friedricke Investment
Security Incorporated. Al1eqediy~toldl I that this wire
transfer was td'"purchase a Treasury B111 at 5 1/2% interest. r I
allegedly asked I Iwhy she was purchasing a Treasury" Birr--

3
with such a short yield period, I I would not respond to
Mayl s question and just told him to do it. c::::::J told! I that
the $5,000,000 was exclusive~stomer funds which were put on
deposit with Hamilton Taft. ~told' ~that at the time the
transfer was made, Hamilton Taft did not have any funds of its
own.
~__I noted that the form 8-K report which,. was filed in -'-'.
the Securities Exchange Commission (SEC) by Maxphrama for the
purchase of Hamilton Taft, Maxphrama states it has used a
$5,000,000 Treasury Bill to secure a promissory note which funds
were used to conclude the ~urchase of Hamilton Taft from Cigna
Corporation. According tal Itold him that these funds
had been transferred to th~s brokerage firm from customer funds
in the custody of Hamilton Taft. According toL' . ~ also
advised thatl J

Ihad directed him to wire transfer $50,000


; -

in an unrelated transaction.
hJ--l:--\"'"
In order to assist you in preventing your opinion from fs
a historical point of view~ Yle are enclosing a copy of the actual r ~I~
7 [~

b7C
FD-302 noting interview Of, I
with appropriate copies of -J /~'~ '1\
documents provided byl to our agent. --/-t G
I
was also interviewed in December of
1988. I~--:===~Ih~a~d~b~e~e~n~hiired by Hamilton Taft as Treasurer-
Manager of the firm. I I is a Certified Public Accountant
I
(CPA) having become a CPA in the state of ta~;f:rnia
Ibasically stated that shortly after became
:': t986.
President of Hamilton Taft, she told him t a sewall e making
the day to day investment decisions regarding the funds of
Hamilton Taft. She instructed him not to make any investment
unless she okayed them. He explained to her that any monies b7C
collected from the clients only had a two or three day "window"
during which they could be invested prior to having to be paid to
taxing entities. Thereafter, all investments he made, other than
into commercial paper, were done at the direction ~ L
I I In connection with his responsibilitiesC: ~would
assist in the preparation of the monthly financial statements for
Hamilton Taft. Each month a meeting would be held to discuss a
just completed financial statement for the previous month. At
the close of such a meeting in April, 1988, after the close of
the April financial statements,l lstated that he had a
conversation with in her office. During this
conversation was bragging on the financial strength of
Maxphrama an ow axphrama was in the process of purchasing C &
H Nationwide Incorporated, a specialized trucking company.
Apparently, in order to sUbstanti~te herr statements and the
strength of Maxphrama, she showedL _ the Hamilton financial
statement which listed Hamilton Taft's assets in excess of
30,000,000. r I
financial picture was quite different than
the financial statements which he had prepared for Hamilton from
the month of April, 1988. J3i{))~. x ~~'lJJ~~ l~.~'~~~~'~;} - , :~: ~~'J~t::1JDL~~~ ~/~:.~~,
~r::'~:,:~~~ i,"'" t"'"'' ''''U' k'" '.' I
~
pparent to~ lin looking at the financial
statement showed him that someone had taken the April,
1988 financ~a statements of Hamilton and re-did them. The
financial statement prepared for Hamilton Taft showed its
reta)U:d earnt'ngs at approximately $200,000. , Istated he
toldL _ . during this conversation that he thought the
financ~al statements which she had showed him for Hamilton Taft
were a fabrication and not rl:prese:ta~ive of Hamilton Taft's
actual financial condition. _ ~ Jreplied that the people in
Dallas were taking care of these f~nancial statements.
~~~_rnoted that the above incident concerning what he
considered false and misleading financial statements was a major
factor in his ultimate decision to sever his employment with
Hamilton Taft. A copy of the interview form FD-302 the interview
oil I is incorporated as part of this communication.
It should also be noted that onel was I
interviewed in september of 1988 regarding his former employment
with Hamilton Taft. At the time of this interview,c::J stated
that he was self-employed as a consultant specializ~ng in
employment taxes. He stated that prior to being self-employed,
he was employed for five years with Hamilton Taft in San
Francisco as their Chief Operations Officer and Executive Vice
President. A copy of the interview conducted withc::J is
attached hereto.

This matter was informally presented to the united


states Attorney's office which concluded that there was a lack of (.
evidence to support the violation of any federal law at that
time. Our case was subsequently closed. I IttI j J.'j(J ; : .'. ". /$. ' .~..-,..
~/Dd tl~/ w(J~ rJ~ . ..,..,,~.fJ _~,~M:.,•.'"

On December 24, 1990 7 -the. o~fiqe receiy..etf~complaint S/,.; :..~j:A.


Icall from one I ~L .Cont.r~~ler "and CPA. I I
( stated that he was the current Controller of Hamilton Taft and
that he was calling the FBI because he felt that his employer was). < }11
cheating the Internal Revenue Service - (IRS) by not paying ta~es (--/1'li'~ I-J; ,'iiI
owing to not only the I~S but other taxing entities wh~n th~Y J ;~~
wer,e due. I - ~advlsed that at least $20,000,000 J.n cl~ent rJIJ ' ! --~:'t
funds have been transferred to accounts controlled by Chip ~B~ .
Armstrong, the new CEO of Hamilton Taft. I I stated that
tbe:e f"rdS were used to purchase one or more companies in Texi?-s.
I ~ stated that Hamilton Taft had approximatel: 100
emp oyees in San Francisco in July of 1990. I t advised
.

Armstrong is basically operating a Ponzi scheme, ut~lizing the


tens of millions of dollars which are sent to Hamilton Taft for
the ultimate payment of tax liabilities sustained by Hamilton
Taft I s clients. I ~ has documentation, to support his claims r~~ t; ~r\ ~
and is scheduled to present same to t~e rBI on Jar:uary 13" ~991 7"~t:"S~'" ~
at 10: 00 am. I I furth 7r stated that th 7re ~s an ongo~ng , i.; ~:-% ~:
procedure for prov1d~ng lul11ng letters to c11ents who actually ~~~< ~
comPlain to Hamilton Taft when they, the client, receive a late ~ t~·~ ~, ~
\ "" ;= 'f\.~ ~
~, ~" ~ s.;- 'R ~
5 ~~ ~~'.~ ~':,~
~ \.)~~ . :
~,~ ~
~ '(";,:""1 ... ~""
~ ..t"- 1 .;::"....
, . . . t;,.i • ~t··
~~'

~~~~.
'-:
b7e

notice from the IRS. , ~ states that a letter on Hamilton


Taft stationery is generated to the IRS berating the IRS for
having made an error in showing at least the front copy of a
check drawn on Hamilton Taft/s checking account allegedly
demonstrating that payment was actually made on a particular date
for a particular tax liability_ These checks were never sent to
the IRS but a copy of the letter was sent to the client, thereby
stalling the clients further inquiries.
Please contact us at your earliest convenience so that
we might discuss this matter in greater detail.
Sincerely yours,
RICHARD W. HELD
Special Agent in Charge

By: b7C

6*
FD-302 (REV 3-10-82)

- 1 -

FEDERAL BUREAU OF INVESTIGATION

Date of transcrIption 03/06/91

-.z"t e.
..-_ /1;:../ d Ii'./r. J ill n CI}i1 () Jrh!
",jI~ I' f-t :;
On the morning of February 13, 1991 :SD,i~ (H(),' :tTl.. J

was interviewed at the Federal Building concerning his knowledge


of a company called Hamilton and Taft located at 1 Market Plaza,
Spear street Tower an Francisco, 94015, telephone number (415)
597-6500. 5.r.lndi',i/'P was the former controller for this
company which is a service company specializing in the
preparation of tax payments for various Fortune 500 companles.
According tol I the Chlef Executive Officer of
Hamilton and Taft, CHIP ARMSTRONG, JR. does not need to report to
any regulatory agencies. I 'advlsed that ARMSTRONG
recently bought a publicly traded company.
I I stated that the accounting firm of PETE MARWICk
is still the auditor for Hamilton and Taft. He further stated
that in August or September of 1990, PETE MARWICkwas trylng to
flnlsh the 1989 audit of Hamilton and Taft. Ham11ton and Taft
ends its fiscal year on December 31st, therefore its fiscal year
coincides with the calendar year.
J"7C
The San Francisco office of PETE MARWICKallegedly
questioned a list of voided checks that it came across during its
last audit of Hamllton and Taft.
~ ~Iadvised
that during thls last audit he was
asslgned to ass~st In pursuit of that assignment
the auditors.
he went to both the accounting department and the disbursements
unit to get cop1es of these he19 checks and discovered that they
were miss~ng from the corporate files. I ladvised that
PETE MARWIcKnever did finish the aforementioned audit. '
Apparently this auditing firm has done reviews for Hamilton and
Taft Slnce 1ts last aud1t, but has not actually conducted an
official audit. I Istated that in his opinion, PETE MARWICK
would not provide an accounting opinion as to the financial
status of Hamilton and Taft because certain documents were not
provlded to them WhlCh prevented PETE MARWICKfrorn flnlshlng thlS
audit. According tal (resigned from the firm
toward the end of December, 1990.

esttgatl0n on 02/13/91 al SAN FRANCISCO r CALIFORNIlFlle # 19 6A- SF- 9ll5'S -/3

b~~ ~~~~~~~t~~~1~S~~~7~C~~~~~~~Dated]ctated 02/28/91

ThlS document contams neither recommendations nor conclusIons of the FBI It 15 the properly of the FBI and IS loaned to your agency,
Itand itl! content! are not 10 be d.l5tnbuted outside your agency
-302a (Rev 11-lS-83)

lbA-SF-2868

On January 3, 1991, CHIP ARMSTRONG held a meeting of


Hamilton ana Taft in the corporate staff's office in
San Francisco and has held these meetings on a daily basis.
Accord~ng t~ ~ ARMSTRONG resides at the Mark Hopkins
Hotel.

b7C
Memorandum

To . SAN FRANCISCO (196A-SF-93255) (P) Date 3/8/91

From sAJ _ (SQ' 5) b7C

Subject CHIP ARMSTRONG, Jr., dba


Hamilton Taft and Company
1 Market Plaza
Spear street Tower
San Francisco, California
FBW; MFi Tax Fraud;
00: SAN FRANCISCO

The purpose of this memo is tO'document events that


9
~~;;;:"":~~Io6..JII'oIIIel...,e since 6bruary 13 I 1 9 whi,?h is the date that
~~~~ ~was last interviewed by the writer. On that
__________~provided a numbs ocuments to iter which
have been disse ~na e y he writer to ~A or the IRS
C~here in San Francisco, telephone number 556-6850. It should:
also be noted. that a copy of these documents along with a summ~ry
of the writer's review of San Francisco file 196A-2868 has been
prepared and disseminated to AUSA MICHAEL YAMAGUCHI at 556-1328.
A copy of this summary is a matter of record under a separate
communication which is a part of this file.
Due to the fact that AUSA YAMAGUCHI was on annual leave
and did not return to his office until March 4, and/or 5, 1991 no
overt investigation was undertaken. This matter was referred to
Mr. Y GUCHI because of his revious referral w' he handled ~
re ardin Haml on Taft in which he subse entl f r- ~_

I
lJlck 0]_it was
prosecution.. This matter was investigated by S
handled under--SF 196A-2868 and was closed
- -7
August, 1988.

with regard to information supplied byl writerI


was reluctant to initiate any overt investigation for fear that-
there would~ Eotential liability attached wherein the
governm~nt £.QB1dJ2e accused.Qf initiatipg the downfall ,of
captioned company bvl'the mere fact that it was making overt
inquiries. [ . ' ,has provided detailed information which, ~
of this date, has'been unable to be thoroughly corroborated.
Progress is being made to effect such corroDorat2on. .

I. ~ expressed apprehension in his mind regarding


the "extensive n time-it was taking for the government to decide
Whether or not to initiate an investigation and to effect some
criminal process. He was told that the government ha_g._:t.Q.........@~_
victim before any process would be forthcoming. He was further
196A-SF-93255
PKM/sgc

advised on more than one occasion by the writer of the potential


civil liability which miggt attach to the revelation to the
general public that the FBI was conducting or maybe conducting an
investigation into certain alleged criminal activities on the
part of Hamilton Taft. .

Nonetheless, on February 1-1, 1991~r= lsaw fit to


contact the congressional offices here in San Francisco of
Congress persons NANCY PELOSI and BARBARA BOXER. ~
~presentat' on resswoman PELOSI's office to whom
spoke ave arne of an investi ative re orter e
~hould consider contacting.. with b~s infOrmat.iQD. On Fel;>ruar~,';
~1, the w~it~r as well as ~gentl lof the Cln repo~ed
- receiving telephone calls from an attorney at the Department of
Justice making inquiry as to the FBI and/or IRS' connection if
any with Hamilton Taft.
b7C
On February 13, 1991, during the interview ofl~ __
conducted by the writer, he was again questioned as to the reason
for making calls to the aforementioned conaressional offices. He
stated that he was concerned about I

Ifollowing his resignation from Hamilton


I
~T-a-Y-~t--o-n--F-le-~b--'r-u-a-r-Y~1~1~,~1~9~9~1~. It should be noted that l
during this interview on February 13, 1991 re-iterated that fact.-
thatl I
1again reminded of potential civil liability problems that might ~
I He was J----
gn?ue from the publicatiQD Qf the possibl~nterest of the FBI
with res~9t to-Jiamilton £af~.

On Wednesday, March 6 1991, the writer received ~


telephone call from SAJ ; JIRS CID who advised that he
had been called by a M-. RALPH :IN W, an investigative reporter
for the Wall street Journal here in San Francisco. The purpose
of KING's call to SWAIN was to confirm that the IRS was
conducting~nY§stigationregarding Hamilton Taft. On the
morning of March 6, 1991, the writer reviewed message slips that
had arrived on Tuesday, March 5, 1991, the writer having been on
sick leave that day and one of, them was from RALPH KING of the
Wall street Journal. The writer did not return KING's phone
call, however, in res~g to a page, for a telephone calIon
the afternoon call of ~h-_6J) 1991, the writer became connected
to Mr. KING of the Wall street,Journal. The usual inquiries were
made and the usual response, t~at, is we can neither confirm
and/or deny the existence of any investigation was provided to
Mr. KING who seemed perturbed £y thi§ ~espon~.

2
196A-SF-93255
PKMjsgc

On March 6, 1991,1 r head of corporate


security of Sun Micro Systems Inc. at 2550 Garcia Ave., Mountain
View, California 94043, telephone number (415) 336-0496 was
called by the writer in response to call that he had made to our
office on March 5, 1991.
that his office had
been contacted by was
accompanied by an attorneJ one (ph) who advised that
the purpose ofl . _ contac lcro Systems was to
advise Sun Micro Systems that it had been the victim of a fraud
perpetrated by Hamilton Taft' on Sun -.Micro Systems and numerous
other corporate clients of Hamilton Taft. I ~dvised
the writer that he would fax certain documents up to San
Francisco at the writer's 5uggestiqn. These documents· included a
copy of· the service agreement thal: exists betw~en Sun .Mic1;"o .
Systems and Hamil ton Taft dated (October 1, __.1987 as well as copies
of certain Federal tax forms whicn had been executed by employees
of Hamilton Taft Company. ~ lalso advised the writer
that I r
ad of his own volition convened a meeting of ""~~}:'~~ _.':~
several of the corporate representatives who he had contacted .t~~('-_~,':;~'.'.J _'J_'- .. ' /
" ;~
.Jr

presumably in the first week of March telling these corporations


who are current and/or former clients of Hamilton Taft, that they
had in fact been ,defrauded by Hamilton Taft. Sun Micro-Systems
reluctantly agreed to "host" this meeting which was to take place .I"'"
during the afternoon of March 8, 1991 at Sun Micro System's ';
offices in Mountain View. nf
,i' " '

.' ,.. /, :':' ;

Of the mornin: of March 7, H91, I I,throtgh'


his associatel l,
an investigator for the Co~porate
Securit~Department of un Micro Systems, facsimiled l~~ages oj
documents to the writer. The most salient point of t~ese
documents was a letter to Sun Micro Systems dated February 13, "', ,'.' '
1991 from the ,.IRS in-- Fresno. The letter refers to a particular ,/' ;) >')'
tax identification number utilized by' Sun Micro Systems and . '~:
references a tax period ending september 30 I 1990.'- The letter ~,l~:?,.,.
}
goes on to thank tax payer (Sun Micro Systems) for its reply t -.~, ';

dated January 25, 1991 and its payment of $260,784.25 in penaltyJ;'.....


fees and for its late deposit of ($5,215, 684~86). The - .,~
signifiri:lD:e Of th~S ::mmunication is that Sun Micro Systems .,' ..
t h r o u g h L J h a s represented, as of March 7, 1991, that
it did lnac~ sen t e appropriate money that is $5,215,684.86
to Hamilton Taft via a wire transfer in order to pay employment
tax obligations do and owing the IRS for the tax period ended
September 30 r 1990. Per an agreement of which the writer is in
receipt, that is, the service agreement between Hamilton Taft and
Sun Micro System?, Hamilton Taft is responsible for the
payment of~--L~e penalti~§4 It is an inference drawn by Sun

3
196A-SF-93255
PKM/sgc

Micro Systems personnel that this document tends to corroborate


what I I was alleging in his representations to the
government. '
On the afternoon of March 7, 1991, AUSA YAMAGUCHI was
personally visited by the writer and a brief update was provided
to him of events that have taken place. On March 8, 1991, copies
of the aforementioned facsimiles were provided to AUSA YAMAGUCHI
fore his review. On March 8, 1991, Mr. YAMAGUCHI suggested to
the writer ,that efforts continue to accumulate enough probable
cause to cause the issuance of a search warrant for the offices
b7C at Hamilton Taft at the earliest possible date.
The following corporations have been contacted by ]
I land/or his attorney and ~d~~~ed that they' have been the
victims of fraud perpetrated on them by Hamilton Taft. These
corporations are Costal Savings Bank, Sun Micro Systems, American
West Airlines, and one or two chemical companies located at the
east coast. In addition, I I
advised writer that he
has been contacted by representat~ves of Lloyds of London
Insurance company with respect to Hamilton Taft. It is-y,nkno~~
~~~~~~tdyal~!!!p~;~_!,~~_,~.wil.~
, h_e,Y,~~,},~E?i.~~,~~~!~,!:~~~,~,__ "_9! .. J)}.e
me~t~ng_"",I:.o-;-oe,,··he~d_~,at,.Sun.,M~c_ro __ systems, ().f:!:~pes
,on the .afternoon
at-March 8, 1991.

San Francisco at San Francisco, California:


Investigation is continuing.

4*
rt>-ECF https;//ecf.cand.uscourts.gov/cgi-bjn/DktRpt.pl?43 7271341263912-L_'"

CLOSED

u.s. District Court


California Northern District (San Francisco)
CIVIL DOCKET FOR CASE #: 3:91-cv-00708-CAL

Steven Solodoff, et al v. Hamilton Taft & Co.~ et al Date Filed: 03111/1991


Assigned to: Hon. Charles A. Legge Date Terminated: 04/29/1993
Demand: $9,999,000 lury Demand: None
Cause: 31 :3729 False ClainlS Act Nature of Suit: 890 Other Statutory
Actions
Jurisdiction: Federal Question

Plaintiff
USA
ex reI.

Plaintiff
Steven Lawrence Solodoff represented by Daniel Robert Bartley
individually andpersonally Daniel Robert Bartley Law Offices
POBox 686
Novato, CA 94948-0686
(415) 898-4741
Email: danielbartleylaw@aol.com
LEAD ATTORNEY
ATTORNEY TO BE NOTICED

v.
Defendant
Hamilton Taft & Co. represented by Lawrence A. Callaghan
Tucker Ellis & West LLP
One Market Street
Steuart Tower
Suite 1300
San Francisco, CA 94105
415-617-2400
Fax: 415-617-2409
Email:
lawrence.callaghan@tuckerellis.com
LEAD ATTORNEY
AITORNEYTO BE NOTICED

Defendant
Maxpharma Inc

· of6 7/23/1009 8:58 PM


:AND-ECF https:llec£cand.uscourts.gov/cgi-bin/DktRpt.pl?437272341263912-L_."

Defendant
The Remington Companies, Inc.

Defendant
Connie C. Armstrong, Jr. represented by Lawrence A. Callaghan
(See above for address)
LEAD ATFORlvEY
AITORNEY TO BE NOTICED

Defendant
Frances Bartlett

Defendant
Richard Fowles

Defendant
Albert May

Defendant
Steven Lan

Defendant
Christine Grambling

Defendant
Vicky Dimalanta

Defendant
Muhammed Hadid

Defendant
John Roberts, Jr.

Defendant
Dresdner Petroleum

Defendant
Dresdner Enterprises

Defendant
Winthrop Realty Company

Defendant
Knightsbridge, Ltd.

Defendant

:of6 7/23/20098:58 PM
ND-ECF https://ec£cand.l1Scourts.gov/cgi-bin/DktRpt.pl?43 7272341263 912- L_ ..

Hamilton Management

Defendant
Hamilton Taft International

Defendant
Affiliated Businesses Group

Defendant
Cigna Companies

Date Filed # Docket Text


03/11/1991 1 COMPLAINT (Summons(es) issued) Cd, COURT STAFF) (Entered: 03/12/1991)
0311 I/] 991 FILING FEE PAID: 0113/12/91 in the amount of$ 120.00, receipt # 11167. (tl,
COURT STAFF) (Entered: 03/12/1991)
03/11/1991 3 EX PARTE APPLICATION by plaintiff for order sealing complaint. (tl, COURT
STAFF) (Entered: 03/12/1991)
03/11/1991 3 MEMORANDUI\1 by plaintiff in SUpp011 of application [3-]] (tl, COURT STAFF)
(Entered: 03/12/199])
03/11/1991 3 DECLARATION by Daniel Robert Bartley on behalf ofplaintiffre application
[3-1] (tl, COURT STAFF) (Entered: 03/12/1991)
03/] 1/1991 4 ORDER by Judge Charles A. Legge granting application [3-1] sealing file for 60
days (cc: all cOlmsel) (iI, COURT STAFF) (Entered: 03/12/1991)
03/12/1991 2 ORDER by Judge Charles A. Legge setting status conference for 11 :00 6/14/91 (cc:
all counsel) (tl, COURT STAFF) (Entered: 03/12/1991)
03/20/1991 5 ORDER by Judge Charles A. Legge to reassign to Judge Charles A. Legge cases:
C-91-752 VRW; C-91-781 FMS; C-91-791 FMS; C-91-798 FMS. Cases are related.
(cc: all counsel) (d, COURT STAFF) (Entered: 03/22/1991)
04/10/1991 6 RETURN OF SERVICE executed as to Richard Fowles, Vicky Dnnalanta, Al May,
& Steven Lau on 3/28/91 (cb, COURT STAFF) (Entered: 04/12/1991)

04/17/1991 7 STIPULATION extending defendants time in which to file responsive pleadings. (tl,
COURT STAFF) (Entered: 04/22/199])
04/24/199] 8 RETURN OF SERVICE executed as to defendants ofC-91-752 CAL on 4/23/91 (tl,
COURT STAFF) (Entered: 04/30/1991)
05/02/1991 9 DECLARATION by Edward F. Donohue on behalf of defendant re: C-91-708
CAL. (tl, COURT STAFF) (Entered: 05/06/1991)
05/15/1991 10 STIPULATION and ORDER by Judge Charles A. Legge: extending tilne to answer
to 611 1/91 (cc: all counsel) (tI, COURT STAFF) (Entered: OS/20/1991)

of6 7/23/2009 8:58 PM


2AND-ECF https://ecf.cand.uscourts.gov/cgi-binlDktRpt.pl?437272341263912-L_...

06/03/1991 11 NOTICE of declination of intervention by United States. (d, COURT STAFF)


(Entered: 06/05/1991)
06/03/1991 RECEIVED Notice of suggestion of dismissal by United States Ctl, COURT STAFF)
(Entered: 06/05/1991)
06/03/1991 12 MEMORANDUM in support of notice [11-1] (tI, COURT STAFF) (Entered:
06/05/1991)
06/03/199] 13 DECLARATION by Stephen 1. Segreto (tl, COURT STAFF) (Entered: 06/05/1991)
06/0311991 RECEIVED Orderre: [1 ]-1] (tl, COURT STAFF) (Entered: 06/05/1991)
06/03/1991 RECEIVED Notice of suggestion of dismissal (d, COURT STAFF) (Entered:
06/12/1991 )
06/05/199] 14 STATUS CONFERENCE STATEMENT by plaintiff (tl, COURT STAFF) (Entered:
06/11/1991)
06/05/1991 RECEIVED Stipulation extending time to respond to complaint by Federal Express
(re: C-91-752 CAL) (d, COURT STAFF) (Entered: 06/11/1991)
06/07/1991 15 OPPOSITION by plaintiff to suggestion to dismiss counts 1 & 2. (tl, COURT
STAFF) (Entered: 06/11/1991)
06/07/1991 ]6 ERRATA by plaintiff to [14-1] (d, COURT STAFF) (Entered: 06/11/1991)

06/11/1991 17 STATUS REPORT by plaintiff (tl, COURT STAFF) (Entered: 06/] 2/1991)
06/11/1991 18 NOTICE of suggestion of dismissal by plaintiff (d, COURT STAFF) (Entered:
06/12/1991 )
06/14/1991 19 MINUTES: (C/R not reported) Status conference held. Clerk to call and set a status
conference in all the Hamilton Taft cases. Case is unsealed per stipulation and order
of this court. (elm, COURT STAFF) (Entered: 06/18/1991)
06/26/1991 20 CLERI('S NOTICE; Status conference 7/19/91 @ 11 :OOam (d, COURT STAFF)
(Entered: 06/28/1991)
07/11/1991 21 STATUS CONFERENCE STATEMENT by defendant Albert May (d, COURT
STAFF) (Entered: 0711211991)
07/11/1991 22 STATUS CONFERENCE STATEMENT of Scott Paper Company (re: C-91-781
CAL) (tl, COURT STAFF) (Entered: 07/15/1991)
07/12/1991 23 STATUS CONFERENCE STATEMENT by defendant Connie C. Armstrong Jr.,
defendant Winthrop Realty Co (tl, COURT STAFF) (Entered: 07/15/1991)
07/12/1991 24 PROOF OF SERVICE of Stipulation extending time to respond to complaint filed
by plaintiff Federal Express (re: C-91-752 CAL) (tl, COURT STAFF) (Entered:
07/15/1991)
07/19/1991 25 ORDER by Judge CharlesA. Legge relating cases: C-91-708 CAL, C-9]-781 CAL,
C-91-791 Ci\L, C-91-752 CAL, C-91-798 CAL & C-91-2138 VRW (Date
Entered: 7/22/91) (cc: all counsel) (tl, COURT STAFF) (Entered: 07/22/1991)

·of6 712312009 8:58 PM


JD-ECF https://ecfcand.uscourts.gov/cgi-binlDktRpt.pl?43 7272341263 912-L_...

07/19/1991 26 I\IfINUTES: ( C/R none) ; Status conference held. ; Status conference continued to
10/18/91 @ 11 :OOam (tI, COURT STAFF) (Entered: 07/30/1991)
08/19/1991 RECEIVED stipulation & order of dismissal by plaintiff Federal Express Corp. (tl,
COURT STAFF) (Entered: 08/20/1991)
08/20/1991 27 STIPULATION and ORDER by Judge Charles A. Legge: disnlissing defendant
Vicki DiMalanta without prejudice in C-91-752 CAL (cc: all counsel) (tl, COURT
STAFF) (Entered: 08/21/1991)
10/08/1991 28 EX PARTE APPLICATION by plaintiff for extension oftinle to serve defendants
(Ic, COURT STAFF) (Entered: 10/10/1991)
10/08/1991 29 DECLARATION by Nancy G. Krop on behalf of plaintiff re application [28-1] (Ic,
COURT STAFF) (Entered: 10/10/1991)
10/08/1991 RECEIVED Order re: [28-1] (Ie, COURT STAFF) (Entered: 10/1011991)
10/09/1991 30 ORDER by Judge Charles A. Legge granting application [28-1] ( Date Entered:
10/16/91) (cc: all cOlillsel) (Hlp, COURT STAFF) (Entered: 10/16/1991)
01/08/1992 31 ATTORNEY SUBSTITUTION: terminating Ivlorgenstein & Jubelirer as counsel for
Scott Paper COlnpany and substituting Halt & Hume and Hass& Najarian (mp,
COURT STAFF) (Entered: 0]/13/1992)
01/29/1992 32 ORDER by Judge Charles A. Legge Status conference set for 11 :OOam on 4/17/92
(Date Entered: 2/4/92) (cc: all counsel) (mp, COURT STAFF) (Entered:
02/04/1992)
04/17/1992 33 MINUTES: (C/R not reported) ; Status conference held (nlp, COURT STAFF)
(Entered: 04/21/1992)
03/24/1993 34 CLERK'S NOTICE Status conference reset for 11:004/23/93 ; (tn, COURT
STAFP) (Entered: 03/26/1993)
04/02/1993 35 NOTICE of change of address by attorney Anthony Ching (tn, COURT STAFF)
(Entered: 04/06/1993)
04/08/1993 36 NOTICE by Skadden Arps Slate Meagher & Plom of new contact attorney (tn,
COURT STAFP) (Entered: 04/09/1993)
04/15/1993 37 STATUS CONFERENCE STATEMENT by Federal Express Corp. (tn, COURT
STAFF) (Entered: 04/16/1993)
04/16/1993 38 STATUS CONFERENCE STATEMENT of Frederick S. Wyle, Trustee of Hamilton
Taft & Co. (tn, COURT STAFF) (Entered: 04/19/1993)
04/16/1993 39 STATUS CONFERENCE STATEMENT of defendants Armstrong, and Hamilton
Taft & Co., et aL (tn, COURT STAFF) (Entered: 04/19/1993)
04/19/1993 40 STATUS CONFERENCE STATEMENT ofMt. Diablo Medical Center (tn, COURT
STAFP) (Entered: 04/20/1993)

of6 7/23/20098:58 PM
AND-ECF https:llecfcand.uscourts.gov/cgi-bin/DktRpt.pl?43 7272341263912-L
_0"

04/29/1993 41 ORDER by Judge Charles A. Legge staying action pending bankruptcy proceedings
, terminating case (Date Entered: 4/30/93) (cc: all counsel) (tn, COURT STAFF)
(Entered: 04/30/1993)

09/28/1994 42 ORDER by Judge Charles A. Legge of disrnissal \vithout prejudice ~rith consent of
the United States (Date Entered: 10/4/94) (cc: all counsel) [3:91-cv-00708] (cs,
COURT STAFF) (Entered: 10/04/1994)

10/04/1994 43 PROOF OF SERVICE by nlail of notice of dismissal withour prejudice with consent
of the U.S. and order. [3:91-cv-00708] (cs, COURT STAFF) (Entered: 10/12/1994)

I PACER Service Center


I Transaction Receipt
I 07/23/2009 18:57: 14
IPACER Login: Inb1262 IClient Code:
IDescription: IDocket Report !Search Criteria: 13:91-cv-00708-CAL
1Billable Pages: 13 ICost: 10 .2 4

of6 7/23/20098:58 PM
1 GILMORE F. DIEKMANN
PATRICIA H. CULLISON
2 BRONSON, BRONSON & McKINNON
505 Montgomery street
3 San Francisco, California 94111-2514
Telephone: (415) 986-4200
4
Attorneys for Plaintiff
5 FEDERAL EXPRESS CORPORATION
6

8 UNITED STATES DISTRICT COURT


9 NORTHERN DISTRICT OF CALIFORNIA
10

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~ ~ ) COMPLAINT FOR INJUNCTIVE
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) FOR BREACH OF CONTRACT,
14 HAMILTON TAFT & COMPANY, ) FOR BREACH OF FIDUCIARY
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20 PARTIES
21 1. Plaintiff FEDERAL EXPRESS CORPORATION ("Federal
22 Express") is a corporation organized and existing under and by
23 virtue of the laws of the state of Delaware, and maintains its
24 principal place of business in Memphis, Tennessee.
25 2. Plaintiff is informed and believes and thereon alleges
26 that Defendant HAMILTON TAFT & COMPANY (I1Hamilton Taft ll ) is a
27 corporation organized and existing under and by virtue of the
28 laws of the state of California and maintains its principal place

COMPLAINT FOR INJUNCTIVE RELIEF


1
of business in Texas.
2

3
II.
4
JURISDICTION AND VENUE
5
3. This is an action for breach of contract,. breach of
6
fiduciary duty, and breach of agency relationship arising, inter
7
alia, under the California civil Code section 2322 et seq. The
8
amount in controversy exceeds the sum or value of Fifty Thousand
9
Dollars ($50,000) exclusive of interest and costs. The
10
jurisdiction of this Court is invoked pursuant to 28 U.S.C.
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4. Venue is properly laid in this Court pursuant to 28
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GENERAL ALLEGATIONS
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Count One
20
(Breach of Contract)
21
5. Plaintiff realleges and incorporates by reference as
22
though fully set forth herein each and every allegation contained
23
in paragraphs 1 through 4 of this Complaint.
24
6. In December of 1989 Federal Express entered into a
25
payroll tax service contract with Hamilton Taft. Pursuant to
26
this agreement, Federal Express would wire transfer its employee
27
payroll taxes to Hamilton Taft. Under the contract Hamilton Taft
28
was then obligated to make disbursements to the appropriate

COMPLAINT FOR INJUNCTIVE RELIEF


2
1
taxing authorities on behalf of Federal Express including the
2
IRS, and state and local taxing agencies. As consideration for
3
performing this service, Hamilton Taft had the use of Federal
4
Express' money from the time of its receipt until the time of its
5
disbursement to the appropriate taxing authority.
6
7• Federal Express has performed all of its obligations
7
under the contract by promptly delivering to Hamilton Taft all
B
appropriate payroll tax summary reports and payroll tax funds.
9
Plaintiff has fUlly performed all contractual obligations except
10
where prevented by breach of defendant.
11 8. Plaintiff is informed and believes and thereon alleges
12 that defendant has breached its contractual obligations by,
13 rather than paying plaintiff's payroll taxes with the money
14
transferred for that purpose, the money would be held for an
15
additional 30 to 90 days. Plaintiff is informed and believes and
16 thereon alleges that in some cases defendant then used a
17 different client's incoming funds to pay Federal Express taxes
18 and any federal or state taxing agency penalties for late
19 payments.
20 9. Plaintiff is informed and believes that in other cases,
21
Federal Express taxes simply were not paid, and penalties may be
22
accruing.
23
10. Defendant has further breached the contract by not
24
providing original tax receipts evidencing the tax payments as
25
requested by plaintiff.
26 11. As a result of defendant's breach of contract plaintiff
27
has been damaged in excess of $50,000. In order to discovery the
28
true extent of its damages plaintiff is in need of information

COMPLAINT FOR INJUNCTIVE RELIEF


3
1
from the defendant regarding payroll taxes paid and money
2
currently owed to the appropriate taxing authorities~ Such
3
information is within the exclusive control of the defendant and
4
has not been made available to the plaintiff as requested.
5

6
Count Two
7
(Breach of Fiduciary Duty)
8
12. Plaintiff realleges and incorporates by reference as
9
though fully set forth herein each and every allegation contained
10
in paragraphs 1 through 11 of this Complaint.
11
13. Plaintiff is the trustee of the tax funds withheld from
12
the wages of its employee. Plaintiff, as trustee of these funds,
13
is a fiduciary of the withheld funds for the purpose of paying
14
the required amounts to the united states, and state and local
15
agencies.
16
14. As custodian of these funds, defendant owed a fiduciary
17
duty to the plaintiff to transmit these funds to the appropriate
18
taxing agency promptly and in the full amount. Defendant also
19
had a fiduciary duty to invest these funds as a reasonably
20
prudent investor investing his own money would have done so as
21
not to jeopardize the principle. On information and belief
22
plaintiff alleges that by investing in high risk non-liquid
23
loans, defendant has breached this fiduciary duty.
24

25
Count Three
26
(Breach of Agency Relationship)
27
15. Plaintiff hereby realleges and incorporates by
28
reference as though fully set forth herein paragraphs 1 through

COMPLAINT FOR INJUNCTIVE RELIEF


4
1
11 of this Complaint.
2
16. Pursuant to the written payroll tax service contract
3
entered into between the defendant and plalntiff, defendant
4
became the agent of plaintiff.
5
17. Defendant consented to the creation of this
6
relationship by agreeing to accept payroll tax money from the
7 plaintiff and deposit such money on behalf of the plaintiff in
8
the appropriate amounts and manner on or before the statutory
9
deadlines as herein alleged.
10
18. In consideration of i~s entering into an agency
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0 relationship with the plaintiff, defendant had the use of
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taxing authorities.
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17 loyalty required defendant to pay the payroll tax funds owed by
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19
manner, and to refrain from administering the payroll tax funds
20 --- in a manner- harmful to the interest of the plaintiff, including
21 imprudent investments, or investments which might expose the
22 plaintiff to taxing authority liability.
23
20. Also pursuant to its agency relationship with the
24
plaintiff, defendant owed a duty to disclose promptly upon demand
25
by the plaintiff all documents, including tax receipts, relating
26
to the defendant's administration of the plaintiff's payroll
27
account ..
28
21.. Defendant has breached its agency relationship by

COMPLAINT FOR INJUNCTIVE RELIEF


5
1
failing and refusing to render to Federal Express, upon its
2
demand, an accounting of its fund.
3 22. Defendant1s breach of its agency relationship has
4
caused plaintiff damages in an amount to be specifically
5
ascertained at trial but which is presently alleged to be in
6 excess of $50,000.
7

B count Four
9
(Injunctive Relief)
10 23. Plaintiff hereby realleges and incorporates by
Z 11
0 reference as though fully set forth herein paragraphs 1 through
Z
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;;; 22 of this complaint •
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13
~ 24. Unless defendant is restrained by appropriate
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injunctive relief herein from destroying or otherwise disposing
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19 defendant is ordered to immediately produce tax receipts and/or
20 other information regarding the transfer and-use of fundS,
21 plaintiff will suffer immediate and irreparable injury for which
22 there is no adequate remedy at law herein.
23 WHEREFORE, plaintiff prays for judgment against defendant as
24 follows:
25 1. For preliminary injunctive relief restraining or
26
otherwise preventing defendant from destroying tax receipts
27
and/or other information regarding the transfer of payment of
28
plaintiffls payroll taxes as alleged, pending trial;

COMPLAINT FOR INJUNCTIVE RELIEF


6
1
2. For preliminary injunctive relief ordering defendant to
2
cease using plaintiff's payroll tax funds as part of a "ponzi
3
scheme u , pending trial;
4
3. For a temporary restraining order enjoining defendant
5
from destroying tax receipts and/or other information regarding
6
plaintiff's payroll taxes; and
7
4. For an order mandating the production of tax receipts
8
and/or other information in control of the defendant regarding
9
the payment and transfer of plaintiff's payroll tax funds; and
10
4. For damages for the acts herein alleged in accordance

with proof.

JURy DEMAND

Plaintiff Federal Express Corporation hereby makes demand

for jury.

Dated: March 13, 1991

BRONSON, BRONSON & McKINNON

BY:(#z(~~~
19

20

21 PATRICIA H. CULLISON
Attorneys for Plaintiff
22

23

24

25

26

27 \PHC\29296\9999\COMPLT.CMP
4459-J.Alten
28

COMPLAINT FOR INJUNCTIVE RELIEF


7
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fax Question
Was the Big Spender
Just Spending Money
Firms Owed to IRS?
Texan ·Chip Armstrong Ran
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SchemeProcessing Funds,
Former Employee AI,leges
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FedEx Frets Over $16 Million

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'axQuestion: Wag Big-Spender 'Chip' Armstrong


Just Spending Money That Others Owed to IRS?

....
Memorandum

To SAC, SAN FRANCISCO (196A-SF-93255) (~C 3/17/91

From

Subject (CHANGED)
CONNIE C. ARMSTRONG JR. AKA,
CHIP ARMSTRONG, DBA
HAMILTON TAFT AND COMPANY
ONE MARKET PLAZA, SUITE 3200
SPEAR STREET TOWER
SAN FRANCISCO, CA. 94105
MAIL FRAUD, FBW (A), TAX FRAUD
00: SAN FRANCISCO

Title marked changed to note the true name of captioned


SUbject Armstrong.
The purpose of this memorandum is to request authority
to create a series of sub files for this case. This memorandum is
to be maintained on the inside cover of each of the following sub
files as well as the top serial of the main file.
Sub C: All FD-302 / s
Sub D: Subpoenas and all correspondence regarding same.
Sub E: All correspondence and or documents received
from victim corporations. A new subfile should
be created when documents are received from each
separate company. These may be designated E-l,
E-2, etc.
Sub F: All information on captioned SUbject Armstrong.
Sub G: All Record checks, DMV, Criminal checks l photos,
etc.
Sub H: All correspondence with the United states

~
AttorneY's office.
sub I:}All information received or sent to the IRS.
: All Prentice Hall, Information America and or
Dataquick inquiries.
Sub K: All computerized analysis of documents and or
account information.
SUB L: All media coverage of th'
SUB M: All inform
(f, ee ~A./N hie 5 el','~J J
1-196A-SF-93255 SUB-C:
196A-SF-93255

SUB N: All correspondence and/or documents received


about corporations which material amounts of
money and/or property was transferred into from
Hamilton Taft; And/or any ather corporations
that one of Hamilton Taft's officers has
monetary interest. A new subfile should be
created when documents are received from each
separate company. These may be designated N-l,
N-2, etc ••

SUB 0: Any lnformation, correspondence received from


the trustee appointed to handle the Hamilton Taft
bankruptcy

2
FD-301 (REV 3-1tl-82)

- 1 -

FEDERAL BUREAU OF INVESTIGATION


~

Date of transcription 3/19/91..

On the mornin9 of March 18, 1991,' I


,date Qf.bir~l I. was interviewed 'at tha
~a~n~~r~a~n~cisco office of the Federal Bureau of Investigation (FBI)
regarding a knowledge of his former employer, Hamilton Taft.
Present during this int1ryiew were SPfcial Agent (SA) I ~
~ lof the FBI and SA. _of the Internal Revenue
service, Criminal Investigative Division in San Francisco. Mr.
I I
was accompanied by an Attorney named I IWho'
represented herself as being an independent contractor working
for I ~ other attorney. This -
interview was conducted in the San Francisco office of the FBI.
I ~provided the following information. b7C

In speculating as to what Hamilton Taft might currently


be doing to hide the "hole n in their client's accounts as a
result of an ongoing embezzlement, that the
possibility existed that Hamilton Taft was IIdwnmying Uplf the
Federal Deposit receipts that would accompany e payments made
by the com:any in the normal course of business. He stated that
onel I
the current Account Manager at Hamilton Taft, has
an Qutstan ~ng client checklist for January which would represent
those clients whose checks were withheld afte~ beina is~ued by
Hamilton Taft to yariO;S ta~ing authorities. [ ~ J
volunteered thatl jhas already talke to hJ.s attorney
and himself I : with regard to the situation at Hamil ton
Taft and that th~s was done quite recently. J Ispeculated
that some of the monies embezzled by Hamilton Taft from i~_s ~
clients may have gone to an individual whose last name isL I
with respect to other indt'Yid::lS
knOWledge of the embezzlement which
may have
states is taking
rhO
place or has taken place at Hamilton Ta , he stated that those
individuals in the client relations department may want to be of
ass~stance to the FBI. I I~tated tbllt t~e Chief Financial
Off~cer for Tandem Computers, oneL Jmay have some
ee information with regard to a former employee namedl
in a Dcsitirn to provide information. I
lwho might
. number is

Invemgattonon 3/18/91
b7C at San Francisco. CaliforniCf'lleN 196A-SF-93255 Sub C

b~~~~~~~~~~~~~~~~~~~~~~~~~~~/~s~~~~~~~~~Datedlct&t~ 3/18/91

ThIS document con.1ams neither recammendahons nor conclUSions of tbe PBI It 15 the property of the FBI and IS loaned t<1 your agency,
it and Its contents are not to be dl.!trlbuted outside your lieney
~D-i02a (Itev. 11-1"5-83)

196Ar-SF-93255 Sub C

ContlnuaUon o!FD-302 of ~I..... ---I'--- ' On 3/18/91 , Page 2


-- --

I I advised that one I I


california, a former employee of Hamilton Taft who resigned in
late August or early September of 1990 allegedly got a death
threat with regard to his threatening to make the investment scam
at Hamilton Taft known to authorities. According to I I
I Irefused to pUll various clients checks after they had
been issued by Hamilton Taft and in his resignation letter,
states his unhappiness with what he ~elieyed
scam at Hamilton Taft. Furthermore, L
fO
be an illegal
_advised that.
I lallegedly restated his reasons for leaving Hamilton Taft
in a letter to the Unemployment Department in the state of
California basically stating that the he resigned and/or was
fired because of the fraud ongoing at Hamilton Taft.

Yet another individual who might possibly be of b7C


assistance to the investi ation would be a former employee/
. who is located that atr---l
California, telephone ,U~be~1 ~
~------------------~s-t-a-t-e~dthat he has spoken wit jand that
~~~ould be w111~ng to make a deal with ~he FBI. I
stated that anal Ihas also been calling h~m since the
Wall street Journal art1cle was pUblished on Friday, March 15,
1991. He.VOlunt1ered that ARMSTRONG
romance wl.th one
.t'. S
still carrying on a

I ladvised that the role of ALBERT MAY, the


President or former President of Hamilton Taft consisted/ among
other things of devising a method as to how to keep track of the
various penalties incurred as a result of the withholding of tax
payments on the part of Hamilton Taft. According tal I
MAY has the most knowledge of this fraud.
______~Ifurther stated that onel lis the
current Secretary of CHIP ARMSTRONG and that she resides either
in I land that I ~ stated that
she took many documents home with her as a sort of a protection.
Many of the documents thatl Ihas allegedly taken home with
her have I Ion them.
According tal I the individual who would have
the greatest amount of knOWledge with regard to ARMSTRONG's
Dallas operations is anal ~was a former
1"
LJ

1
GILMORE F. DIEKMANN, Jr.
2
PATRICIA CULLISON
RICHARD P. WALKER
3
BRONSON, BRONSON & McKINNON
I ~I 505 Montgomery street
}
I
4
San Francisco, California 94111-2514
'-;0
Telephone: (415) 986-4200
5 Fax: (415) 982-1394

6
Attorneys for Plaintiff
FEDERAL EXPRESS CORPORATION
7

8
UNITED STATES DISTRICT COURT
9
NORTHERN ;DISTRICT OF CALIFORNIA
10

11 FEDERAL EXPRESS CO )
) NO.
12 )
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) EI T AMENDED ,COMELAINT . ",


13

1.4
v.
HAMILTON TAF & COMP
~ t(/ff;It~;~;2~" ~f c:~~;~ct·
) J2. Breach of ,Fiduciary
.
CONNIE C. TRONG, Duty
15 REMINGTON S. INC., RICHARD )3. Breach of Agency
FOWLES, S N LAU, CHRISTINE) Quties
GRAMBLING, BARRY MORGAN, AL MAY,} 4. Breach of Implied
ED HARGIS, VICKY DIMALANTA, ) Covenant
DRESDNER ENTERPRISES, INC., ) 5. Negligence
DRESDNER PETROLEUM, H.I. ) 6. Negligent Misrepre-
INTERNATIONAL, C.R. } J sentation
ACQUISITIONS, INC., and ) 17. Fraud
KNIGHTSBRIDGE, ) ~8. Conversion
} 9. Violation of Racketeer
20 Defendants. );:c' Influenced and Corrupt
________________________________) organizations Act
21 (18 U.S.C. §§1961
et~)
22 10. Unfair Business
Practices .
23 11. False and Misleading
Advertising
24 12. Constructive Trust
13. Accounting
25 14. Money Had and
Received
26
15. Declaratory Relief
16. Injunction
27
DEMAND FOR JURy TRIAL
28

1ST AMENDED COMPLAINT


1
Plaintiff Federal Express Corporation ("Federal Express tl )
2
alleges as follows:
3
THE PARTIES
.{
1. Plaintiff Federal Express is a corporation dUly
5
organized and existing under the laws of the state of Delaware
6
with its principal place of business in Memphis, Tennessee.
7
2. Plaintiff is informed and believes and thereon alleges
B
that defendant Hamilton Taft & Company ("Hamilton Taft") is a
9
California corporation with its principal place of business in
10
San Francisco, California. Hamilton Taft is engaged in
Z 11
0 interstate commerce.
Z
• 12
-
Z
~
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.:.
3. Plaintiff is informed and believes and thereon alleges
U ti ~ 13
~ L:.l
l:Z:_< that defendant Connie C. Armstrong, Jr. ("Armstrong ll ) is the
:a~~t;~~
0 )0 1.4 chairman and majority shareholder of Hamilton Taft, and is a
uZffi~-r
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Lt.V)ouc.
,.. 0 - 15 resident of Dallas and a citizen of the state of Texas.
:;gi
o~
~!i 16 4. Plaintiff is informed and believes and thereon alleges
z0
- ~ <
If
z 17
V'I <
III
that defendant Remington Cos. Inc. (tlRemington"} is a Texas
Z
0 18
~ corporation with its principal place of business in Dallas,
~
19
Texas, and is a holding... company for Armstrong' s interests.
20
5. Plaintiff. is informed and believes and thereon alleges
21 that defendant Richard Fowles (IiFowles") was president of
22 Hamilton Taft from March 1989 through September 1990, executive
23
vice president of Remington from October 1990 until January 1991,
2.4
and chief financial officer of Hamilton Taft thereafter.
2S
Plaintiff is informed and believes and thereon alleges that
26

27
Fowles resides in California.
.I
6. Plaintiff is informed and believes and thereon alleges
28 that defendant steven Lau (ULau U ) was a 'vice president and

1ST AMENDED COMPLAINT


2
1
director of Hamilton Taft at times relevant herein, and resides
2
in the state of California.
3
7. Plaintiff is informed and believes and thereon alleges
.d
that defendant Christine Grambling (ttGrambling") was president of
5
Hamilton Taft from September 1990 until January 1991, and is and
6
was a resident and citizen of "the state of Texas.
7
8. Plaintiff is informed and believes that defendant Barry
8
Morgan ("Morgan") was chief accountant for Remington and
9
performed accounting functions for Hamilton Taft. Plaintiff is
10 informed and believes and thereon alleges that Morgan is and was
z 11 a resident and citizen of the state of Texas.
0
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9. Plaintiff is informed and believes and thereon alleges
-
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operations for Hamilton Taft, and is and was a citizen and
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15 resident of the state of California.
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0 that defendant Vicky Oimalanta was at all relevant times an
V)

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~
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19
11. Plaintiff is informed and believes and thereon alleges
20 that defendants H.I. International and C.R. Acquisitions, Inc.
21 are entities owned or controlled by, and affiliated with,
22 Armstrong and his affiliated entities.
23
12. Plaintiff is informed and believes and thereon alleges
24 that defendant Ed Hargis' ("Hargis") was at all.relevant times
25 president of Dresdner Petroleum, and is and was a resident and
26
citizen of the state of Texas.
27
13. Plaintiff is inform~d and believes and thereon alleges
28
that defendants Dresdner Enterprises, Inc. and Dresdner Petroleum
.~ .•.. _... _--_._-'--_ .. __ .:::;

1ST AMENDED COMPLAINT



1
(collectively IIDresdner tl ) are Texas entities with their principal
2
place of business in Dallas, Texas,. and are owned or controlled
3
by, and affiliated with, Armstrong and his affiliated entities •
.4
14. Plaintiff is informed and believes and thereon alleges
5
that defendant Knightsbridge ("Knightsbridge") is a Texas entity
6
with its principal place of business in Dallas, Texas, and is
7
owned or controlled by, and affiliated with, Armstrong and his
8
affiliated entities.
9
15. Plaintiff is inf~rmed and believes and thereon alleges
10 that at all times herein mentioned, each of the defendants was
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hereinafter mentioned was acting within the scope of such agency
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and with the permission, authority and consent of the other
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defendants.
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16. There exists, and at all times herein mentioned there
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defendants Armstrong, Hamilton Taft, Remington, Dresdner, H.!.
Z
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~
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20 separateness of the Armstrong Defendants has ceased and each of
21 these defendants is the alter ego of each other. Adherence to
22 the fiction of the separate existence of the Armstr~ng Defendants
23 would permit an abuse of the corporate privilege and would
24 sanction injustice. Each may be held responsible for the acts of
25 the others.
26
JURISDICTION AND VENUE
27 17. This court has subj~ct matter jurisdiction pursuant to
28
28 U.S.C. §§1331 and 1332, 18 U.S.C. §§1964(a) et seg., and the

1ST AMENDED COMPLAINT


4
f

1
doctrine of pendent jurisdiction. The amount in controversy
2
exceeds the sum or value of Fifty Thousand Dollars ($SO,ooo.ao),
3
exclusive of interest and costs.
4
18. Ven~e is proper in this jUdicial district pursuant to
5
28 U.S.C. §§1391{b) and (e) and 18 U.S.C. § 1965, because
6 defendants do business and transact their affairs and the claims
7 herein arose in this jUdicial district.
8
GENERAL ALLEGATIONS
9
19. In January of 1990, Federal Express entered into a
10 written payroll tax service contract with Hamilton Taft.
Z 11 Pursuant to this contract, Federal Express agreed to periodically
0
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~ ~
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~w< Hamilton Taft agreed to prepare and file all of Federal Express's
=-
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15 the Internal Revenue Service and state and local taxing
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agencies), and to disburse Federal Express's payroll taxes to
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.~
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20 advanced and the date the funds were due. Hamilton Taft promised
21 to timely pay Federal Express's taxes, as well as any penalties
22 which resulted from Hamilton Taft's acts or omissions.
23 20. On or about March 8, 1991, Federal Express was informed
24 by former Hamilton Taft controller steve Solodoff that defendants
25 were engaged in a massive scam involving tax fraud and other
26
misconduct. Plaintiff was informed that, among other things,
27 defendants were not disbursing Federal Express's taxes to taxing
28 authorities when due.

1ST AMENDED COMPLAINT


5
1 21. Plaintiff is informed and believes and thereon alleges
2
that rather than pay Federal Express's payroll taxes when due
3 'with the money transferred for that purpose, defendants held such
4 money for an additional period of time. Plaintiff is informed
5 and believes and thereon alleges that defendants, at times, used
6 funds belonging to other Hamilton Taft clients to pay Federal
7 Express's taxes and any penalties for late payments; at other
8
... times, defendants used funds belonging to Federal Express to pay
9 the taxes and penalties of' Hamilton Taft's other clients.
10 Plaintiff is further informed and believes that some of Federal
Z 11 Express's taxes were never paid, and penalties may b~ accruing.
0
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13
22. Plaintiff is informed and believes and thereon alleges
U that some of Federal Express's funds were misappropriated 'and
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20 paragraphs 1 through 22, inclusive.
21 24. Defendants' conduct constitutes a breach of the payroll
22 tax service contract.
23 25. Federal Express has performed all conditions and
24 covenants on its part to be performed under the payroll tax
25 service contract, except those conditions or covenants excused or
26 prevented by defendants' breach and the wrongful acts and
27 omissions described herein.
28
~.::::::.:.:.:::;

1ST AMENDED COMPLAINT


6
t

1
26. Defendants have further breached the contract by not
2
providing plaintiff full access to plaintiff's tax records in
3
defendants' possession, custody or control •
.4
27. As a direct and proximate result of defendants' breach
5
of contract, plaintiff has sUffered damages in an amount to be
6
proved at trial.
7
SECOND CAUSE OF ACTION
a (Breach of Fiduciary Duty
9
Against the Armstrong Defendants Only)

10
28. Plaintiff realleges and incorporates by reference
Z 11
0 paragraphs 1 through 27, inclusive.
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- ;Q 29. Federal Express placed extreme trust and confidence in
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of their relationship, defendants owe plaintiff a fiduciary duty
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20. Plaintiff is informed and believes and thereon alleges
i" ~ ~ 17
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V1 In
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19
paid when in fact they were not, misapplying or misappropriating
20
Federal Express's funds; and failing to invest funds as a
21
reasonably prudent investor would invest his or her own money.
22 Defendants further breached their fiduciary obligations by
23
refusing to .provide Federal ExPress immediate and full access to
2A
all documents and information in defendants' possession, custody
25
or control relating to Federal Express's payroll taxes and funds.
26
21. As a direct and proximate result of defendants' breach
27
of fiduciary duty, plaintiff has suffered damages in an amount to
2S
be proved at trial.
~,_.-.- .. _-_. __ ......•... -

1ST AMENDED COMPLAINT


7
1
THIRD CAUSE OF ACTION
2
(Breach of Agency Duties
3 Against the Armstrong Defendants only)

~
32. Plaintiff real leges and incorporates by reference
.s paragraphs 1 through 31, inclusive.
6
33. Pursuant to the written payroll tax service contract,
7
defendants became plaintiffts agent.
8
34. Pursuant to its agency relationship, defendants owed a
9
duty of loyalty to Federal-Express. This duty of loyalty
10
required defendants to disburse Federal Express·s payroll taxes
z 11
to taxing authorities, to do so in a timely'manner, and to
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refrain from administering Federal Express's funds in a manner
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harmful to Federal Express's interests. Among other things,
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investments with Federal Express's funds, or investments which
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might expose Federal Express to tax penalties. Defendants also
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~ access to any and all documents and information in defendants'
~
19
possession, custody or control relating to Federal Express's
20
payroll taxes and funds.
21 35. Defendants' conduct constitutes a breach of their
22 agency duties.
23 36. A~ a direct and proximate cause of defendants' breach
..
24
of their agency duties, plaintiff has suffered damages in an
2S
amount to be proved at trial.
26

27
28
-:~--_ . _.._.-..._.._..-.::=:-

1ST AMENDED COMPLAINT


8
1
FOURTH CAUSE OF ACTION
2
(Breach of the Covenant of
3 Good Faith and Fair Dealing Against
the Armstrong Defendants Only)
.4
37. Plaintiff realleges and incorporates by reference
5
paragraphs 1 through 36, inclusive.,
6
38. Implied in the tax service agreement is a covenant of
7
good faith and fair dealing whereby defendants were obligated not
8
to take any actions which would deprive plaintiff of the benefits
9
of the contract and to do everything which the contract
10
presupposed defendants would do to accomplish the contractts
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timely disburse plaintiff's payroll taxes to the appropriate
13
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39. As a proximate result of defendants' breach of the
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implied covenant of good faith and fair dealing, plaintiff has
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17
been damaged in an amount to be proved at trial.
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c:::: FIFTH CAUSE OF ACTION
cQ
19
(Negligence Against" All Defendants)
20
40. Plaintiff realleges and incorporates by reference
21
paraqraphs 1 through 39, inclusive.
22
41. By agreeing to pay Federal Express's payroll taxes, and
23
to do so in a timely manner, defendants assumed a duty to use
24
such skill, prudence and' dil~qence as other members of
25
defendants' profession and business commonly possess and
26
exercise.
27
42. By failing to make ~imely payments to the appropriate
28
tax authorities and by imprudently using plaintiff's funds,
.~

1ST AMENDED COMPLAINT


9
1
defendants have breached that duty. Defendants knew, or should
2
have known, that Federal Express would be injured by defendants'
3
acts and omissions •
.4
43. As a direct and proximate result of defendants'
5
negligence, Federal Express has suffered damages in an amount to
6
be proved at trial.
7
SIXTH CAUSE OF ACTION
8
(Negligent Misrepresentation Against All Defendants)
9
44. Plaintiff realleges and incorporates by reference
10
paragraphs 1 through 43, inclusive.
Z 11
0 45. Defendants, at the time they entered into the tax
Z
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service agreement and thereafter, represented to Federal Express
uG~ 13
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:r u ~ '- or subject these interests to undue risk. Defendants had no
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.~
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20 1
the intent that Federal Express rely on the representations.
21
Federal Express was unaware that the representations were false
22
and, believing them to be true, was induced to enter into the tax
23
service contract and to advance and continue'advancing its
24
payroll taxes to defendants.
25 47.' As a direct and proximate result of defendants'
26 negligent misrepresentations, Federal Express has suffered
27
damages in an amount to be proved at trial.
28
•....... __ .................. -

1ST AMENDED COMPLAINT


10
f 48. Defendants' conduct was willful, malicious and
2
oppressive, and done with the intent to injure plaintiff or with
:3
reckless disregard of its consequences to plaintiff, and
A
justifies an award of exemplary damages.
5
SEVENTH CAUSE OF ACTION
6
(Fraud Against All Defendants)
7
49. Plaintiff realleges and incorporates by reference
8
paragraphs 1 through 48, inclusive.
9
50. Defendants, at the time they entered into the tax
10
service contract and thereafter, represented that they would pay
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Federal Express's payroll taxes, and in an appropriate and timely
......
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manner and in a manner that did not and would not expose
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19 52. Plaintiff was iqnorant of the falsity of defendants'
20 representations and reasonably believed them to be true. In
21 justifiable reliance upon those representations, plaintiff was
22 induced to enter into the tax service contract and to advance
23 funds and continue advancing "funds to defendants.
2.4 53. As a direct and proximate result of defendants' fraUd,
25 plaintiff has suffered damages in an amount to be proved at
26
trial.
27'
54. Defendants' conduct was fraudulent, willful and
28 oppressive, and plaintiff is entitled to exemplary damages.
-.:.:::=:==:..:=.:;.'
1ST AMENDED COMPLAINT
11
1
EIGHTH CAUSE OF ACTION
2
(Conversion Against All Defendants)_
3
55. Plaintiff realleges and incorporates by reference
4
paragraphs 1 through 54, inclusive.
5
56. At all times herein mentioned, plaintiff had, and
6
continues to have, the right to possession and ownership of the
7 funds conveyed to defendants for payment of Federal Express's
8 payroll taxes.
9 57. Plaintiff is informed and believes and thereon alleges
10 that defendants wrongfully converted plaintiff's funds for their
z 11 own purposes.
0
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payment of those funds to the appropriate tax authorities.
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.otz Defendants have refused to comply with these requests •
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59. As a proximate result of defendants' conversion,
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20 60. Defendants' c6nduct was willful, malicious and
21 oppressive and justifies an award of exemp~ary damages.
22 NINTH CAUSE OF ACTl:ON.
23 (Violation of RICO, 18 U.S.C. §1961 et seq.
Aga~nst All Defendants)
2.4

25 61. Plaintiff realleges and incorporates by reference


26
paragraphs 1 through 60, inclusive.
27 62. Plaintiff is informed and believes and thereon alleges
28 that defendants misappropriated and converted plaintiff's funds'
P':::::::'=:::=:-

1ST AMENDED COMPLAINT


12
1
to their own use, failed to pay amounts due to taxing
2 authorities, and misrepresented to plaintiff that its tax
3 payments were made. Such conduct was in violation of 18 U.S.C.
A
§1341, in that defendants used Federal Express's funds for their
5
own personal benefit and carried out their scheme by means of the
6 united states mails.
7 63. Plaintiff is informed and believes and thereon alleges
8
that, as a part of defendants' fraudulent scheme, defendants
9 mailed checks across interstate lines and communicated with
10 Federal Express that payments were made, when in fact such
z
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11 payments had not been made and defendants had converted or
......
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misappropriated federal Express's funds. Plaintiff is informed
~
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13 and believes and thereon alleges that defendant engaged in
a:_
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14
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9 .....
,
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customers of Hamilton Taft.
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that the foregoing activities are continuous and related, and
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~
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19 of 18 U.S.C. §1962(c). Plaintiff is further informed and
20 believes that this pattern caused injury to plaintiff and others.
21 65. As a proximate result of defendants' pattern of
22 racketeering activity, plaintiff is informed and believes that it
23 has incurred damages consisting of, among other things, exposure
24 to penalties for failure'to pay taxes when due, and liability for
25 taxes that .defendants failed to pay.
26
66. As a direct and proximate result of defendants'
27
conduct, plaintiff is entitled to recover treble damages from
28
defendants in an amount to be determined at trial.
--_. __ ...•...•... __ .. __ .. _--
1ST AMENDED COMPLAINT
13
1
TENTH CAUSE OF ACTION
·2 (Unfair Business Practices Against All Defendants)
3
67. Plaintiff realleges and incorporates by reference
~
paragraphs 1 through 66, inclusive.
5
68. Defendants' acts, omissions and representations
6
constitute unfair business practic~s in violation of §17200 of
7 the California Business and Professions Code.
8 69. As a direct and proximate result of defendants' unfair
9 business practices, plaintiff has suffered damages in an amount
10 to be proved at trial.
z 11 ELEVENTH CAUSE OF ACTION
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Against All Defendants)
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15 allegation in paragraphs 1 through 69, inclusive.
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19 72. As a direct and proximate result of defendants' false
20 and misleading advertising, plaintiff has suffered damages in an
21 amount to be ascertained at trial.
22 TWELFTH CAUSE OF ACTION
23 (constructive Trust, Against the
Arms~rong Defendants Only)
24

25 73. Plaintiff realleges and incorporates by reference


26 paragraphs 1 through 72, inclusive.
27 74. By virtue of the wrongful acts described above,
28 defendants have been unjustly enriched and hold plaintiffs

1ST AMENDED COMPLAINT


14
1
funds, as well as any proceeds of those funds, as constructive
2 trustees for plaintiff.
3
THIRTEENTH CAUSE OF ACTION
A
(Accounting, Against the Armstrong Defendants Only)
5
75. Plaintiff realleges and incorporates by reference
6 paragraphs 1 through 74, inclusive.
7
76. Plaintiff has demanded, and is entitled to, a full
8 accounting of all monies paid by defendants to tax authorities on
9 plaintiff's behalf, and immediate and full access to all records
10 in defendants· possession, custody, or control relating to
Z 11
0 plaintiff's monies and payroll taxes. Defendants have refused to
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provide such an accounting or full access to the records.
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t1Z ~5:~ 14 (Money Had And Received, Against
~S; ~§i 15
the Armstrong Defendants Only)
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'C::::
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19 that defendants are indebted to plaintiff 'in the amount of
20 plaintiff's unpaid tax liabilities and penalties, if any, in an
21 amount which is presently unknown but which will be ascertained
22 at trial.
23 79. Neither the whole nor any part of this sum has been
24 paid despite demand therefor. The amount of any such unpaid
25 taxes and penalties is now due and owing to plaintiff.
26

27

28

p.,:::"':::::::::::

1ST AMENDED COMPLAINT


15
1
FIFTEENTH CAUSE OF ACTION
2
(Declaratory Relief Against the
3
Armstrong Defendants Only)

A
80. Plaintiff realleqes and incorporates by reference
5
paragraphs 1 through 79, inclusive.
6
81. Pursuant to the terms of the payroll tax service
7
agreement, defendants agreed to indemnify plaintiff for all
8
injuries caused by defendants' conduct. Plaintiff seeks a
9
jUdicial declaration that ~his express indemnity is enforceable
10
and that defendants must indemnify Federal Express for any unpaid
Z 11 tax liabilities, including penalties.
0
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SIXTEENTH CAUSE OF ACTION
U ~ ~ 13
~ ~-< (Injunction Against All Defendants)
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t3 Z ~ ~ ~ 82. Plaintiff realleges and incorporates by reference
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0-..,
~ g~ paragraphs 1 through 81, inclusive.
In
uz 16 83. Plaintiff is entitled to injunctive relief restraining
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0 -< defendants from destroying or otherwise disposing or altering
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0 18 plaintiff's tax records and other documents and information in-
~
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19 defendants' possession, custody or, control concerning the use and
20 transfer of plaintiff's tax funds. Plaintiff is also entitled to
21- injunctive relief restraining defendants from continuing their
22 wrongful course of conduct described above, and ordering
23 defendants to immediately provide plaintiff full access to all
24 documents and information in defendants' possession, custody or
25 control concerning Federal Express's payroll taxes and funds.
26 WHEREFORE, plaintiff prays for relief as follows:
27 1. For an injunction r~straining defendants from
28 destroying, removing or altering all documents and information
--
1ST AMENDED COMPLAINT
16
1
concerning Federal Express's payroll taxes and funds in
2
defendants· possession, custody or control and affording Federal
3 Express immediate and full access to such documents and
4
information;
5
2. For an injunction requiring defendants to return
6
i~ediately to Federal Express any and all sums held for or on
7
account of Federal Express;
8 3. For an injunction ordering defendants to cease using
9 plaintiff's payroll tax funds as part of defendants· scheme, or
10 for any wrongful purpose, pending trial;
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5. For treble damages pursuant to 18 U.S.C. §1964(c);
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~ Ul -< 6. For exemplary damages in a sum sufficient to deter
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defendants from similar conduct in the future;
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g:~;:; 15 7. For attorneys· fees and costs of suit incurred herein
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z pursuant to contract and 18 U.S.C. §1964{C):
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17
0 z 8. For an accounting of all monies paid by defendants to
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0 18 tax authorities on behalf of Federal Express;
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19 9. For such oth~r and further relief as this court deems
20
appropriate.
21 Dated: March 20, 1991
BRONSON, BRONSON & McKINNON
22

1:1:{{~"f'-
23

2.4 By:
Attorneys for Plaintiff
25 FEDERAL EXPRESS CORPORATION
26

27

28
~

1ST AMENDED COMPLAINT


17
1 JURy DEMAND
2 Plaintiff Federal Express hereby demands trial by jury.
3 Dated: March 20, 1991
4
BRONSON, BRONSON & McKINNON
5

6 By: W!U/~
RICHARD P. WALKER
7 Attorneys for Plaintiff
FEDERAL EXPRESS CORPORATION
8

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20

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22
23

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25

26

27
\RPW\29882\9999\fIRSTAM.CMP
28 3161-~. Thomas

P'::'::=:'::::::::'::=:':== 1ST AMENDED COMPLAINT


18
< t

CERTIFICATE OF SERVICE BY MAIL

I, Alicia Thomas, declare under penalty of perjury under the


laws of the State of California that the following is true and
correct:
I am a citizen of the United states, ov~r the age of 18
years, and not a party to or intere~ted in the within entitled
action. I am an employee of BRONSON, BRONSON & McKINNON, and my
business address is 505 Montgomery street, San Francisco,
California 94111-2514.
I~caused to be served by mail the following document(s):
FIRST AMENDED COMPLAINT

I enclosed a true copy of said document(s) in an envelope,


addressed as follows:
Lawrence A. Callaghan
Long & Levit
101 California street
San "Francisco, CA 94111
I am readily familiar with my firm1s practice for collection
and processing of correspondence for mailing with the United
states Postal Service, to-wit, that correspondence will be
deposited with the United states Postal Service this same day in
the ordinary course of business. I sealed said envelope and
placed it for collection and mailing on March 20, 1991, following
th~ ordinary business practice.

I declare under penalty of perjury under the laws of the


state of Callfornia that the above is true and correct. I
further declare that I am employed in the office of a member of a
bar of this court at whose direction the service was made.
Executed on March 20, 1991, at San Francisco, California.
~

tlira~a~
Alicia Thomas

\RP~\29B82\9999\MAllCERT.SER
3161-A. Thomas

..

(
.
.,.

-
COpy
P" r# ~~


~cCUTCHEN, DOYLE, BROWN & ENERSEN
\. I. DAVID.M. HEILBRON
RANDY MICHELSON
2 ENID A. VAN HOVEN
SARA L. PETERSON
3 Three Embarcadero Center
San Francisco, California 94111
4 Telephone: (415) 393-2000
5 OFFICE OF THE VICE PRESIDENT
AND G~"'ERAI.. COtJNSEL
6 STANFORD UNIVERSITY
JOHN J. SCHWARTZ
7 MICHAEL H. HUDNALL
SUS)l~! K. HOERGER
8 P,O. Box N "~~~
~. 09
9
Stanford, California
Telephone (415) 723-174 ()798
10 Attorneys for Plaintiffs
The Board of Trustees of The Leland Stanford
11 Junior University and Stanford University Hospital
l~

13
UNITED STATES DISTRICT COURT
14
FOR THE NORTHERN DISTRICT OF CALIFORNIA
15

16
THE BOARD OF TRUSTEES OF )
17 THE LELAND STANFORD JUNIOR )
UNIVERSITY and STANFORD )
lR UNIVERSITY HOSPITAL, )
)
19 Plaintiffs, } No.
}
20 v. ) DECLARATION OF
) MAUREEN MAHONEY
21 HAMILTON TAFT & COMPANY, )
CONNIE C,"ARMSTRONG/ JR. )
22 and MAXPHJ\.RMA, INC.! )
)
23 Defendants. )

24
----~--------~---)
/ I I
25
I I I
26
'.


I, MAUREEN MAHONEY, declare as follows:
1

2
I. I have been employed by The Board of Trustees of

3
the Leland Stanford Junior University ("Stanford University")

4
since November 11, 1980 and currently hold the position of

5 Payroll Manager in the Controller's Office. I make this

6
declaration in support of plaintiffs' Application for Temporary

7
Restraining Order and Order to Show Cause Re Preliminary

8
Injuction. Except as otherwise stated, I have personal knowledge

9
of the following and could and would testify competently thereto

10
if called upon to do so.

11
2. I am informed and believe that from 19B2 until

12
August 1990, Stanford University had a contract with Hamilton

13
Taft & Company (llHamilton Taft"). In substance, that contract

14
required Stanford University to transmit its withholding tax

15
liability to Hamilton Taft. Hamilton Taft, in turn, was required

16
to deposit those funds in time to meet governmental tax filing

17
deadlines.

18
3. As part of my responsibilities, staff under my

19
direction determines the ~ount of Stanford Universityls payroll

20
withholding tax liability (including the payroll withholding tax

21
liability.for the .Stanford Linear Accelerator Center) and notifies·

22
Stanford Universityt s Department of Cash Management and, Investment

23
Accounting of the amount to transmit to Hamilton Taft.'

24
4. In or around late October 1990, I received a copy of

25 a letter from Hamilton Taft to the Internal Revenue Service, dated

26
October 26, 1990, transmitting on behalf of Stanford

DECLARATION OF MAUREEN MAHONEY


2
(SF)8214j
1 Universi~y a check for $272,942.55 to cover a late payment
2 penalty assessed during the second quarter 1990 (the quarter
3 ending June 3D, 1990). True and c9~rect copies of the letter'
4 and its attachments are attached as'; Exhibit A and incorporated
5 by reference.

6 5. On March 14, 1991, ·1 received from the Internal

7 Revenue Service a Statement of Adjustment to Stanford

8 University's atcount assessing a late payment p~palty in the

9 amount of $296,991.48 pertaining to the third quarter 1990 (the


true and ~orrect copy of
'"

10 quarter ending September 30, 1990). A

11 that document is attached as Exhibit B and incorporated by

12 reference.

13 6. On March 15, 1991, in response to Exhibit B, on

14 behalf of Stanford University, I transmitted to the Internal


I

Revenue Service by overnight kail a check in the amount of


r.'
15

16 $297,010.30 (the amount of the penalty, $296,991.48,- plus

17 $18.82 otherwise outstanding on Stanford University·s account).

18 I declare under penalty of perjury that the foregoing

19 is true and correct and that this declaration was executed at

20 San Francisco, California on March 16, 1991.

21

22
Maureen Mahoney/
23

24

25

26

DECLARATION OF MAUREEN MAHONEY


3
{SF)BZi4J
.Q3/11.l91 OS:4i , ... 8014 l4; 00 Z

.. " -

October 26, 1990

#139
Department of the Treasury
Internal Revenue Service
Fresno, CA .93888
ACcr # : 94-1156365
. CLIENT : Leland Stanford University
FORM : 941
PERIOD: ·'/30/90
Ladies/Gentlemen:
This is in response to your DOtice dated October 8, 1990 concerning the above client
and taX period. .
A research of our record5 indicates that one deposit was late:

'Iimelv'
Period Liability Deposit Late
4/4/90-4/7/90 $5,,462)955..16 4,104.29 5.458,850.87
S% Penalty $272..242.55
We are e.nclosing our checks for a total sum of S272,942..55. Please explain which
other deposits you consider to be late and why. Upon receipt of requested
information we will respond promptly with doc:ume~tation. Attached is a schedule
of liabilities and corresponding deposits for your reference.

Accordingly, we ask th~r:10nU make the necessary adjustment in your records and
place the account in a ced status. Please issue..an updated statem.ent- -

Thank you for·your cooperation in this matter.


Sincerely,

~ T ax Specialist
IRS REP.. #900S-47801R

RS/dwb
cc: Leland Stanford University

One Mari:'.et Plaza. Spear Street Tower • 32nd Floor • San Francisco, Calrfomia 94105
4'51597-6500 8001231-2929 FAX 4151914-1755 Exhibi t A
03'11/91 05:49 -a'~]5 725 B014 STA~. CO\lROLLER, ~005

\,. - .".:, ,...c~m~...)theTre. Canoofthis


,. . 1.° OC . i .Q , le~n
••ternal Re\lcnue Service • ~x.o;;zye' I dEn.tlfyin~ r\hjrTlb'!f
77~
'i 4-115 6 ~ {: ~
fR~~MO, CA 93a58 Form: 941 TiI~Perioci: JUHE 30, 199C-

( IIJ1I.ltutl..,Jllrl, 11I11111 .1.1.1111.1111.11. n.1.. 1111I111111 For .ninance you m2lY


~!: LIS Bt:

StANFDRD UHIVERSITY !OAP..D OF =# /.£$'7 ~ c.... 1-800-829-1040 ST. OF


TRUSTEES OF THE lElA~O STAHFORD JU
8S7 SERRA ST 1ST FLOOR
S7AHFORD CA 9430S-1205 Or yoU may WTite to us at
.
,J
thl!. Icldren shown at the
lefL If you write. be
lLIfe to attach the boncm
pan af thil notice.
REQUEST FOR PA1MEHi
FEDERAL EMPLOYMENT TAX
---.cUR R~COP.DS SHO\Al YOU ott:=. $29 C;', 569.94 DH YOUR R.ETURH FO~ THE ABOVE TAX··PERIED~'- ,,;,c-
THE PENALTY SHC~N BELOW IS BECAUSE YOUR i~X DEPOSITS ~ERE HCT MADE IN SUFFICIENi
A~~UNTS BY THE DATES RE~UIRED. IF YOU BELIEVE OU~ RECORDS AP.£ HOT CORRECT, PLE~SE
SEE THE INFOR~ATIOH A!OUT THE AMOUNT YOU OWE ON THE FLAP DF THE ENCLOSED EHVELOPE.
TO AVDID ADDITlnNAL PENALTY AND/OR I~TE~EST~ PLEASE ALLOW ENOUGH MAILI~G TIME SO THkTIWE
RECEIVE YOUR PAYMENT !Y OCT. 18. 1990. ~AKE YOUR CHECK DR MOHEY ORDER PAYABLE TO THE .
IHTERHAL REVESUE SERVICE. SHO~ YOUR TAXPAYER IDE~TIFYING NUMBER QH YOUR PAYMENT AHD MAIL IT
~ITH THE !OiTOM PARi OF THIS HOTICE. IF YOU BELIEVE lHIS MOTICE IS HOT COR~ECT, PLEASE SEE TH:
lHFDRMATIOH A!OUT THf PAYME~TS YOU MADE ON THE FLAP OF lHE ENCLOSED ENVELOPE.
TAX STATEMENT
TIl.X QN REiURH t32.2sa,S63.!1
,OTAL CREDITS .3,.2~8JS63.81
AMOUNT PREVIOUSLY REFU~DED TO YOU $ .. CO
CREDIT BALANCE 6 .. 00
llIPEHALTT 299,569.94
~lHTEREST DOD
AMOUMT YOU OWE $299#569.94

~~~:::fID
....
'-H......e,.. . . ""F-="'O.,.-LL-"O=-:"1L!"":"I::":"' 'HAM.llIOtLIAtI.-
: ' H'I"':::G:-"III'IT'"!j-A"!'---l[l""':I=-=S=-'=T==---=O-=F':r-;;;;-P~AYM=!=H-;-;;T;;-:::S:""""":"':W;;;;E~H:-:"A";'""';V;';'";E;:--::t~R';'E~DI=-:T;-:E::J)~T-:n -::Y~O:::U";";;R.;---:-A':"CC::':O:-:U-::H;-:T:-"i::'F~O R;:;-:;;T~H~E AS 0 V E. TI.X AN D
,. AX P ERICD:
nATE OF PAYMEHT AMOUHT CATE O~ PAYMENT AMOUNT DATE OF PAYMENT AMOUNT
~?R. 11, 19~O 4,104.%9 lPR. ~5, 1'90 3.137 .. 30 APR .. 2S. 1990 5 .. 1.3Z,!!!.
MAY 10, 1~9D 3,26~.12 MAY 10, 199D 5;1~3,1'3.0D' fi~Y 15, 1991)--- S63.
MAY 16, 199t 270,151.66.. MJ.Y- 25. 1991) 3.709.1'3 MAY 25, 1990 it , 97 a I , 0 ~ .
JUNE 12. 1990 3,517 .. 37 JUNE 12. 1990 5 , 1-S:3 , S9! .. 6 9· JUNE IS, 1990 , 367.
JUNE 20 J 19~O 5~Z) 7~O .37" JUNE' 2.7" 199D 1/4,613.11 JUKE 27. 1990 S.QltJ,235.
JULY 30, 1990 5J4,93!.64· . JULY 31, 1990 "20.13 JULY 31) 1990 S~45!.652.

PENALTY AND INTEREST CHARGES


$299.S6~.94 FEDERAL TAX DEPOSITS INSUFFICIENT - SEE EHCLDSED HorleE. CODe 03

Jvn....
ti\ QAh.fJ.AlA ,..,
N \./
f1,1J /:5 Ilt/ C)a/,I'a.:v
" .,..--- -~ (1r,U ~ b1!,L db /7 9G1

~jr~/ ~ 5~~ 1!anJ~'-/~-


rc make lure thl!lt IRS employees give eourte-au.t responses and correct information to 'taxpevers•• Rcond IRS employee sometime! li.n~m ir.
ele'phone cal/s;.

-----------------------. __ .......... _- .....


{eep this part for your records
-~....,-~ ....... -_...-~ .......... - ... ...
~ --.-
o.-w,. 5 Fer.n 8ot8S
... - .... -.,.,--_.---
n:....

03"11/91 06:45 fS'415 i~5 8014 ST.\..\. CO~1ROLL£F

. . -....

HAMiLTON TArT & COMPANY 882


OPEAATrNG ACCOUNT
, ~ARKET PlAZA. SPEAR TOWSfl. S2NO FL.OOR
SAN FRANCISCO, CA. 94'05
OCTOBER 26. 19 90
n4.. TOTHE
V
.r OR.D£P. OF $" 272 l 942 .. S5
TWO HUNDRED SEVENTY iWO THOUSAND NINE HUNDRED FORTY TWO AND 55/100 ----------------- DOLL{PS
I
i
I

J
I

.. 1

! "

1- .'.~ ...

t If
-1 220
1,;'

I~.F'AF\ n'~.N r tJ;:' , I-!E TREASUR'l' n.. te of t:hh noti~1l l1l:ln. l~, lq~l.
nternal RB~.nut Servlce T.atepayel' lcllllntl fy t"'q 1"-Il"ItI.1" Q4-ll!~65
~e.nOI :~ 9aS38 Fcr~ ~41 TaM Pe-lod BEP. 30 b l,qO

l-BOO-ge9-1~40 8T OF ~Lr~~~~IA
i TANrWD UN J V£J:ti!TV BOARD OF
TRUSTEE~ O~ TH£ ~ELAND STANFORD JU o~ you ~.Y ~~Ite t~ UI at: thr .dd~.s~
i57 SERR~ 5T 1ST :LOOR .he...n It tk1ll left. If ..,~U llIrlh, b.
lTQN~ORD CH ~~305-7eo5 8ur. to eet.ch th. bottD. pert ~f
thlll naUC:II.

5TATEMENT OF ADJUStMENT TD VDUR ~CCaUNT

P~l~NCE DUE QN ACCOUNT BEFORE ADJUSTMENT


LAtE PArNENT PENALTY'BEE EXP~ANATtUN 07

AD1USTMENT COMPUTATION

PENALTY - SEE EXP~ANATJOH 03 29b,991.16

iNTEREST CHAf:GED .32


NET ADJUSTMENT CHARGE

:i~ANCE DUE

~296,9ql.Jb FEuE~~l lA~ ~FOSIT INSUFFJCIENT - SEE eNCLOSED NerICE. CODE 03


•• 18 FAY INlJ l.ATE - SEE ENClOSED NOTICE I CODE O~I
I.~ INTEREST - SEE ENCL09EV NOTICE, CODE 09
PAVMENTS - SEE ENCLOSED NOTICE, ceDE 16
BAl,.ANCE DUE - SEE ENClQBED NOT ICE I CODE 1B
ADDITIONAL IHTER£ST Ct-lARS£S - SEE EUClOSEn NDllCE, tODE eo
MISCEL~ANEOUS - SEE ENCLOSED NOTICE, CODE es

TC' m.. '!" ~t. r,. tl· .. t IRS olllplC''r'81'. 010."0 courtgou~ I"' • • pgnslltlit .and cor"'l'c:t In'l'ornatltn ttl t.·c::JA..,O'r'!, a
second I~S employ•••~~etlmQG li,tsns 1n on tDI.pno~ eill ••
__________________________________ t"f-l~l;-f~Bl_EQB_XgUE_B&k1mD~ -__

R.turn tltl, part. to UG HUh your check or lnqulr\,

V~ur tp:~phDn~ ~Lmber ~ •• t ti~e to call


1 1 • _
NOJNT vau eWE e97 .010.30
g9lS4-4~~-130l'-1
LESS PAYKElne WO,. JNt.1..UDEO

PAY ADJUSTED AMOUNT 1 _

lNYt::RN4L hEVENJE St!RVICE


FRE9NU, C~ 933~a
BTANFORD utHVVl9JTl' !IOAR[I CF
TRUBTEES OF lHE LELI~D BTANFtRD 3U
e;n SERRA liT 1ST Ft.OCrA
9~1IS6~o~ STAN~~D CA q43?S-7eo~

Exhibit B
Stanford University
OFFICE OF THE CONTROll~?.
lNVE5TMENT ACCOUNTING
,
\

July 26, 1990

MS Sally Conover. Client Relations


Hamilton Taft and Co.
1 Harke!: Plaza
Stear Street Io~er, 32nd Floor
San Francisco. CA 94105

Dear Ms Conover:

Stanford University yould like to make a change in its Payroll Tax


Service Agreement of May 27. 1982. This Agreement encompasses
payroll taxes for both Stanford University proper and the Stanford
Hospital.
tlY,W ~:,
,.>0
j..O
j# J'"
In abouc six ~eeks
Federal payroll taxes for the Stanford University? ~f
proper will no longer be submitted to Hamilton Taft for deposit.
Federal taxes for the Hospical and State taxes for both the ~niversicy
proper and the Hospital viII continue to be submitted to Hamilton Taft
for depo5 it.

I shall let you know in advance ~hen ye ~ill be eliminating the


federal tax submission.

Very sincerely,

Donald R. Price, Investment Accounting Officer

BS7 Scrr.:l 5c~:-::


SC.:1niurd. CA 9~JO.s·620S
(4 IJ) i2J.J9SJ
EXHIBIT E
··coP'V •
(- 1 McCUTCHEN, DOYLE, BROWN & ENERSEN
DAVID M. HEILBRON
2 RANDY MICHE~SON
ENID A. VAN HOVEN
3 SARA L. PETERSON
Three Embarcadero Center
4 San Francisco, California 94111
Telephone: (415) 393-2000
5
OFFICE OF THE VICE PRESIDENT
6 AND GENERAL COUNSEL
STANFORD ONIVERSIT~
7 JOHN J. SCHWARTZ
MICHAEL H. HUDNALL
tl SUSAN K. HOERGER
Post Office Box N
9 stanford, califor~943~11~

10
Telephone (415) 72~743~
Attorneys for Plaintiffs
0798
11 The Board of Trustees of The Leland stanford
Junior University and stanford University Hospital
12
UNITED STATES DISTRICT COURT
13
• 14
~HE
FOR THE NORTHERN DISTRICT OF CALIFORNIA

BOARD OF TRUSTEES OF )
15 THE LELAND STANFORD JUNIOR )
UNIVERSITY and STANFORD )
16 UNIVERSITY HOSPITAL, )
)
Plaintiffs, ) No ..
17
)
v. ) DECLARATION OF
) DONALD R. PRICE
19 HAMILTON TAFT & COMPANY, )
CONNIE C. ARMSTRONG, JR. )
20 and Ml\XPfiARMA, Inc., )
)
-- 21 Defendants. )

22
-------~-----------)
23 I, DONALD R. PRICE, declare as follo~s;

24 1. I am employed by Stanford University as Investment


25 Accounting Officer of the Office of the controller, Investment
26 Accounting. I make this declaration in support of plaintiffs·
27 APplication for Temporary Restraining Order and Order to Show
28 Cause Re Preliminary Injunction. Except as otherwise stated, I

DECLARATION OF DONALD R. PRICE


- 1 -
..

1 have personal knowledge of the following and could and would
2 testify competently thereto if called upon to do so.

3 2. starting in 1982, the Board of Trus~ees of The Leland


4 stanford Junior University (tithe University") has had a contract
5 with Hamilton Tart & company ("Hamilton Taft"). A true and
6 correct copy of the contract is attached as Exhibit A and
7 incorporated by reference. -In substance t.hat contract required
8 the University to transmit to defendant Hamilton Taft the
9 University's withholding tax liability. Hamilton Taft was
10 required to deposit funds in time to meet governmental tax
11 filing d~adlines for the Univer~ity's tax obligations.
12 3. The contract between the University and Hamilton Taft
13 was amended on February 7 r 1983, February 7, 1984, and september
14 12, 19B5. True and corr~ct copies of those amQndm~nts are

15 attached as EXhibits 8, C and 0, respectivaly, and incorporated


16 by reference.
17 4. Effective September 1, 1990, Stanford University

18 amended its contract with Hamilton Taft by terminating only that


19 portion of ~he contract pertaining to federal payroll tax. A

20 true and correct copy of the letter terminating part of the


21 contract is attached as Exhibit E and incorporated by ref~r~nc~.

22 Thereafter, by telephone, I informed Hamilton Taft that the

23 termination would be effective with the first tax payment in


_24 September.
2;; 5. I have reviewed the University's records pertaining to
2G transfers to Hamilton Taf~ during the second quarter 1990 and

27 have confirmed that in conformance with our customary business


28 practice, and the requirements of the contract, the University
DECLARATION OF DONALD R. PRICE
- 2 -

1 transmitted to Hamilton Taft all payroll ~ax liabilities in
2 sufficient time for Hamilton Taft to deposit the funds on or
3 before the governmental deadline. There is no reason why
4 Hamilton Taft could not have made the deposit of all 'of the
5 University's payroll tax liabilities due during tha second
6 quarter without incurring any late payment pe~alties.

7 6. More particularly, during the second quarter of 1990,


8 th~ University transmitted to Hamilton Taft the following
9 amounts on the following dates in sufficient time for Hamilton
10 Taft to deposit such amounts in time to meet the applicable tax
11 filing deadline:
12 Trans~er Date Tax Amount
Transferred by Wire or ACH
13
4/12/90 $6,170,189 .. 55
14 4/26/90 6,106,061.26
5/11/90 6,136,512.75
15 5/29/90 5,942,945.77
6/13/90 6,174,586.64
16 6/28/90 6,006,112.25

17 7 .. I have reviewed the University's records pertaining to

18 transfers to Hamilton Taft during the third quarter 1990 and


19 have confirmed that in conformance with our customary business
20 practice, and the requirements of the contract, the University

21 transmitted to Hamilton Taft all payroll tax liabilities in


22 . sUfficient time for Hamilton Taft to deposit the funds on or
23 before the governmental deadline. There is no reason why
24 Hamilton Taft could not have made the deposit of all of the
25 University's payroll tax liabilities due dU~in9 the third

26 quarter without incurring any late payment penalties.


'-----------------.:_-=----=--=--~=-------
27 8. More particularly, during the third quarter of 1990,
2S the University transmitted to Hamilton Taft the following

DECLARATION OF DONALD R. PRICE


- 3 -
• •
1 amounts on the following dates in sufficient time for Hamilton
'2 Taft to deposit such amounts in time to mee~ the applicable tax

3 filing deadlines:
4 Amount Transferred
bv Wire or ACe{
5
7/12/90 $5,873,568.43
6 7/26/90 6,197,495.13
8/8/90 5,600,018.73
7 8/10/90 859,896 .. 07
8/23/90 5,212,146.60
8 8/28/90 804,400.80
9/12/90 965,679.73
9 9/26/90 795,668.17

10 9. The total amount the University ~ransm!tted to

11 Hamilton Taft during calendar year 1990 on its own behalf was

12 $105,572,757.40, including both state and federal taxes. The

1.3 total amount the university transmitted on behalf of the

14 Hospital was $52,921,232.77, including both·state and federal

~~ 5 taxes •
.016 I declare under penalty of perjury that the foregoing is

~7 true and correct and that this declaration was e~ecuted at

18 stanford, California on March la, 1991.

19
20
21
I~ tkdtZ
Donald R. Price

22
23
24
25
26
27
.'

28
DECLARATION OF DONALD R. PRICE
- 4 -

P-,~""'~ f ;'
May 27, 1982 : ". : , II~
r r·! r; \. r(.':
" " I''''
'to \

J
r.
I
I

J.' {>.
J" . - '; . ,)
Hamilton Taft & Company x":' I' " •
(
1255 Post street
San Francisco, CA 94109

Re: Payroll Tax Service Agreement

Gentlemen and Ladies:

This letter is to set out the terms of the agreement between

Hamilton Taft & Company (Hereinafter referred to 2S "Hamilton Taft"

or "Company") and the Board of Trustees of the Leland Stanford

Junior Unive~5ity (Hereinafte= referred to as nUnive~5ity" or

"stanford") .

1. Notification: Ha~ilton Taft shall notify Stanford of all

tax deposi~ cue dates relevant hereuncer by five (5) calenda= days

before eac~ cue cater anc shall noti=~ St2nforc of any deficiency

(24) hours after the cat: of deposit.

2. Se~vices to be provided bv Hamilton Taft:

(A) E~iltcn Ta=t shall de90sit for Scan=orc wit~ the releva~~

tax authorities amounts equal to all Federal and California taxes

required to be w{thhelc from the Stanford payroll; including but


not by way of limitation state and federal income taxes, Federal
Insurance Contributions Act (FICA) and Federal Una~ployment Tax

Act (FUTA) taxes. Hamilton Taft shall make these deposits in ti~e

to meet Gove~~~ental deadlines for deposits.

(BJ Hanilton Tat~ shall provide wri~te~ proof of all deposi~s

EXHIBIT A
~ I

f ..·•

I· Hamilton Taft & Co.


May 27, 19B2
Page 2.

not later than ten (lO) working days after the due date for each

deposit.

3. Source of Funds: Deposits by narnilton Taft uncer this

agreement shall be made from Hamilton Taft's bank account Number

0331-02641 at the main office of Bank of Americ~, 345 Montgomery

street, San Francisco, C21ifornia . 94104.

4. Actions bv Stanford:

Stanford will:

(A) Determine amounts to be de90sited for Fede~al and

state withholding purposesj

(3) Advise Hamilton Taft of sue:" amounts, ve'=bally no

later th2~ one (1) day paydate and/or, in writing, not


less t~an two (2) days prior to each tax deposit due date,

using forms sirnila~ or identical to Exhibits A and B, attachec

hereto and by ~~is reference incorporated herein.

(C) Deposit amounts sufficient for such degosits to the

Hamilton Taft bank account described above in a manner timec

to arrive by the following dates:


(i) For Fede~2l Deoosits: not later than ~~~ee (3)

banking days after the due ~ater

(ii) For California Deposits: not later than one {l}

banking cay after tr.e due date.

loose
• •
/

'.

H~~ilton Taft & Co.


( May 27, 1982
Page 3.

5. "
Incemnitv: Hamilton Taft agrees to hold harmless, indemnify
and defend Stanford against any and all liability to any party for

any loss, penalty, damage, liability, expense, claim or demand of any


character, arising out of any breach of duty by H~~ilton Taft under
this agreement.

6. Security Deposit: As security for its performance hereunder

Hamilton Tart shall execute concurrently herewith the Power of Attorney

over Specified Certificate of Deposit at~ached hereto and by this

reference made a part hereof.

7. Fees: As the sole fees for Hamilton Taft's service hereunder,


I. .

stanford grants he=eby to Hamilton Taft ~~e use and benefit of temporary

disposition of funes cepositec to the account of Hamilton Taft as

provided hereunder.

8~ Deliverv Costs: Each party hereto shall pay at the point

of origin the costs of mailing or other communications or docume~ts

originating ~ith such party.

9_ Te~: This agre~rnent shall continue in e=fect until terwinate~

by either party upon thirty (30) days notice of termination celiverec

to the othe~ party, or terminated by mutual agreement between ~~e parties.

10. Notices: Notices, mail, and inquiries hereunde= shall be

directec to each party at the address and telephone number listed on

the nex~ page. Such acc=esses and telephone numbe=s may be changed

by eithe~ pa=ty upon written notice of suc~ c~a~ge celive~ec to t~e


Hamilton Taft & Cop

May 27, 1982
Page 4.

Executed: ,

Hamilton Taft & Company The Board of Trustees of


1255 Post street The Leland Stanford Junior Unive=sit:
San Francisco, CA 94109 102 Encina Hall
Te 1 .: ( 415) 8 S5- 2929 Stanford, CA 94305
Tel.: (408)~97-39S3

~
~
By: By: ~--:
:7 ·
Its A.oc:.~ Jor~ ond ~

at Stanford

Date: _ _J:..-
_ ~ _ Da te: June 29 J 1982
(

A.~NDMEN!:' TO PAYROLL TAX S::?t/!CE AGRE=:MENT
i
,:r-
This J1.menc:nent is made anc ent~re~ into this 7 day of

, 1983, foc the purpose of modifying the Payroll


Tax Ser~ice Agre~ment dated 29 June 1982 between The Board of
Trustees of The Leland Stanford Junior University (nSTANFORD I1
),

102 Encina Hall, Palo Alto, Californi~ 94305, and Hamilton Taft
and Company ("HAJ.'1ILTON TAFT"), -567 Golden Gate Avenue, Sart

Francisco, California 94102, a ~alifornia corporation.

The change shall be mace in Section 4, of ACTIONS BY

STANFORD, paragraph C (il, which shell be amended to read in


its en t i:r e t y

(ii) ~For Federal Deposits: Not later than 2 banking

days after t~e due da!:e. 1l

Except for the change set out abo~e, t~e June 29, 1982
Agree!!lent continues in effect in all its terms.

HAMILTON TA~T & COMPANY TEE BO.a.RD OF TRUSTEES OF THE

BY·
Title /
* d£ ;;~-~--....
LELAND

By

Title
;;
STA~JUNIOR
A'.~
~
d,- / J'"crr~
ONIVEP£ITY

V' ' --------------

EXHIBIT B
• •
Thi:5 Amend::ienL is maCe and. e:1l:r-e~ i.~to thi:: 7th day cf
February, 198L, for the purpose of modifyt'ig the Payrcll Tax Se~­

vke Agt"~ement dated 29 June 1982 between Ihe Board of Trustees of


the Leland Sranford Junir.;r Un11e:-sLlY ("STANFORD"), 102 E:ici:lc.
Hall, !?al-a Alto, CalUorni;: 9G305, and Har.1iiton Taft and Company
("HA~IILTON TAFT"), 567 Gold.en Gale Avenue, San rcancl::co, CaIi-
fornE·..: 9LI02, a Califot":1i.-1 CorpOrallC:1.

the change shall be made i-. SectLn l,. of Aclicns by Stan-


for: dIP a ra g r; a ph C (i & i i) \I,' hi.: h 5ha H be a me n de d tor e a d 1. ~ i I S
entirety

(1.) IIFor Federal Deoosits:


\
Ncr 1ate r t ha n t ..... 0 (2) ban k i. . g
days aEle:- due date.

(i1) "For Califot":1.ia Deocslls: Nee later- than two (2) :,ank-
1f
l!1g days after: due date.

Exceot for the change set above, the June 29. 1~82 Ag:-eerr:enc
conti:lues ill effect i~~ a 11 ilS teens.

HA~'! 1L TON TA FT & CO~IP A:.'lY THE BOARD OF TRUSTE~S OF T~~

LELA~rD STAN?ORD Ju~nc R U~~ IVE:tSI TY

By
7
~
Tille
---------------

RECEIVED
AUG 301984
vP. 8, r,imeri11 Counsel ;:::: ,:

EXHIBIT C
~J'" I L.

• •
Thi.s Ai:le:lc~e:1:' is m.=.da az:d encered into this 12th day or S~pt~~:~:: I

19;5, Eo!:' t~e ~u:'?ose oE moc:ifying the ?ayr:ol! Ta:< Sar\1ice Agres::';;:1::'
\
d~ted 2~ J~ne 1982 ~et·..Jee~ the Boato of 'Ir:ustees of the Lelanc Seanioe::
Junior University {·ST,Ule-Oao·}, 102 Encina Hall, Palo Alto, Californica
9~J05, a.nd Hamilton Taft and Company (IIIiAtHL':'CN TAFT-), 567 Golden Gcite
Avenue, San F:ancisco, california 94102, a Califor~ia Coc?o:ation.

The chanc;e shall be made in Section 4 of Actions by Stanf:>cd,


Parasraph C (i & iil whic~ shall be a~ended to ~ead in its entire~y.

(i) -For federal Deoosits: Not late~ than one (1) banking day aEter
due dat2.·

(iil "Fo~ Calif'or::'lla De;josits·: Not: later tban one (1) banking day
after cue date.·

E~ce?t fo~ the c~anc;e set above/ the June 29, 1982 Ag~e~ment

CQn::~ues in ef:ec~ in all its tec~s.

H~~!LTON TAFT ~ COMPN~Y TEiE 80A.?D 02 nUSTEZS OF


LELAND STANFORD JUNIOR ONIVE~SI~i

BY/~
Concr:Jller
Ti:;.le PrsSiCE~t, EZTiltcn T~~ & C~~~le
-------"""---------

EXHIBIT D
A..P.1ENDMENT TO PAYROLL TAX SERVICE AG?.EEMENT
.'
'-r1-I
This Arnenc.ment. is made anc entered into t-lo}.is (I day of)

October, 1985, for the pUr?0se of modifying the Payroll Tax Ser-

vice Agreement dated 12 October 1983 between Stanford Universi~y

Hospital, 300 Pas~e~= Drive, Stanfo=d, Califo~ia 9430S r and

Hamilton Taf~ and Com?any ("E_~uJL~ON ~AFTn), 567 Golcen Gate Avenue,

San Francisco, California 94102, a Cali=ornia C0r?0ration.

The change s~all be made in nDOTIES OF STANFORD UNIv~RSITY

HOSPITAL" i-tem two (2) which shall be amended to reac i.n its en~i:::-ety

Tr~~sfer Check no soo~e~ and no late= ~hen one calancar

c.ay of -:'he F '. I. T ~ r= .! . C .A. r anc. State "tax dsposi to:::-y cue

dates, i~ ~~e amo~~t 0= 100% o£ =ecie=al a~c stat2 liabil-


i ties.

Exce?t for ~~e c~a~se set a~ove, the Octobe~ 12, 1983 Ag:::-eeme~t.

continues in effect in all terms.

FJ...MILTON 1';''-:1' & co~..? _~_l'!'Y

By 3y

Title Tit.le Jl
y
-.

.....

. .:'.k _~ , '.. ~ ",,_ '. _~ ,-: ~ ••• f~-." .

July 25,1990

Mr. Rog~r Soblc::s


S1:h.."'''FORD ~-rvERSm" no SPITA.L
200 Quar:jRoad N149
Stanford, CA 9430.5

Dcar Mr. No bk:$::

Due 10 the ac.;:.:!:::ac..ion of [ed~:3! cepOSits or liabilities SlOO.OOO and gre~l1cr to the nc:c: business d.:ay
alter paydate (Sc:lio~ 1,12 of th~ Butlgct Re=::mciliauon ACt of 1989). n:l:nilcon T:lfl &:. Compsny
will rc..quire [he follO"'W'i.n~ new deadlines to be adheree lO in ordc;r to ens:Jre limcJy Aloe J~UralC ux
_. deposi.lS..
.. :---:; ..:.:: .
RECETI'T 0 F' FAYR 0 U
·AIl ~Qlli .hsve tQ be r~{ved··b·Y12~jo ?~~.-p;cinc·St2ndsrd Tune· on paycla:c..1' Initiation of funds
mnskr trLlIlSaction.s c:::itical fo:- a=tual tz( disbur5em:nts w-tll be client gcn~:'aled to result in "good ,.
-furi.ds avallable ta·H.amilton Taft by B a.m. on. Fede:al Due Date:· Any p:l)'rolls r~~ivct after 12:30
p _\1.. PST will be pro:::=.ss~, b:l! lim~li!lcss ot deposits cannot be guaran l~rl by H~r.1ilton Taft &.
Ccmp~ny. An; late. d.eposit p~:le.ltie.s and interes~ incurred will be tbc client'S rc:spotlS[bili~y. Any
. cargcs inc:.med for .~e:l(ic::i R~tu.rn.s, jcswring while on Hantiltoll Taft's 5C:vice as Or:igi::3Uy
CODt:T3cted, will be waived..
:::.:.-ff;_::
COLL~CT10~' OFTAX F't:N'DS
SU:alc:d U.cive:sirv Hos~i:.:!.! \:oil! e:l.SU:c S\'Gil:lbiacv 0: 1100C [ucc.s for
.f1 • r# _ f~e:-al liabiliti~ on Fede:aL
au..:. c.::L~C, an~ ,good r'..:.:l~ Io!' s:..: ue li.abilhic.s ~L S:;)t~ c.u.~ date by 8 'U!!..

Sb.oulc fu:)~ n~~ b~ av:.H~bje to :-ia~il~oI:. Tar~ & Con:.:=::;1y as ::or~...:a::le.C. :.~ interes: p::1l31ty or
?r"...:::IC ?.. a~e will be aad~ to lC:.a! ~~ far ~ch cay until ac:u~l rc~:pl of f~nds.

Ple.a.s~ J..ffix yo:.:.: sign.:Ll:.l:e a.n~ C.:lte all li.cI::.s p:ovi:!eC ~low to ac~,o~·lc.dge re:.:ipl, review anc

~~fbu:J=~;8~~UU~~:~U. t1lz:~
Prt:u Na~e Simatur:
/lAfi.;t.J,4tbfl) AC.C;;tWYi/ljr: - j_rb-C)3
Title Dat:

You: ~O?c:3lion arl~ :::or.sid::r41tior. ar~ zFpr~:J.ce.d. S~ould you c:!ve any qU~tiOns, pl:.:lSe C::lnt:Jct
aient Rcla~io~ at (415) 597..JS500.

R7e=:.fuUY,

(j~~~-----
Vic:l.-v Dim:l1an ~
Dir~tor
•........... ----_ :..
.~ CI.ic:: l Re1a tic r'~/Ccc.s ul-r iLl g Sc:!"Vi ~
~:;.~~~.:~.=~:~=:,;::~~~
...

..
,~~~ <?~e Marker ?Ia:.a • Sp.ear Street Tower • 32nc F1oc~ • San Francisco, Cafilomia ~'05
.;.:~~_.~~.>_.. 415/::57-6500 aOOIZ31·2929 F~ 41=!97~17S5
.. ;-~'--:~- .
. -.~~~ .•::~-
1
'.

MICHAEL H. AHRENS (state Bar No. 44766)


.• ~,,'
o.,

GILMORE F. DIEKMANN (state Bar No. 50400)


2 LILLIAN G. STENFELDT (state Bar No. 104929)
BRONSON, BRONSON & McKINNON
3 505 Montgomery Street PAUL C_, K!)·~.h::Y JR
San Francisco, California 94111-2514 c' ~ F p~:
.4 J•S• n'f"····;· '-
Telephone: (415) 986-4200 L:. .... '1':11...:,'1 cr Gif"RT
101 0 n. [:.] ::~ .,- {',;::- (, : ~I
L"o I. t.J. ""it.
5 Attorneys for Petitioner
FEDERAL EXPRESS CORPORATION,
6 a Delaware corporation
7

8 UNITED STATES BANKRUPTCY COURT


9 NORTHERN DISTRICT OF CALIFORNIA
10

Z
0
Z
Z ~
;r;
11

12
In re

HAMILTON TAFT & COMPANY,


9Il 3SE No.1 017
)
~ ~ a California corporation, ) Chapter 11
U f- ;;:
13 )
~!tl ~
~ c:: ~ Debtor. ) INVOLUNTARY PETITION
o ~ t; c:: ...
14
,- >- 0 2S
'1: r.:.. ,.,
.: :i ":
---~-~---------~)
:E 0( ~
o u C7'
15
,£., 2 c5 :!}
j 0 -~ ~ $
c:: C -
16 1. Petitioners are the following: (a) Federal
~ .r.
:E ~
<:
Z~ £l:
0 z.
<:
17 Express Corporation, a corporation organized and existing under
IJ')
U')
Z
0 18 the laws of the state of Delaware; (b) Stanford University
0:
t;Q
19 Hospital; and (c~ The Board of Trustees of the Leland stanford

20 Junior University (hereinafter collectively called the


21 ·'petitioners"). Petitioners are creditors of Hamilton Taft &
22 Company, One Market Plaza, Spear street Tower, 32nd Floor, San
23 Francisco, California 94105 (hereinafter called the "Debtor").

24 Petitioners hold claims against the Debtor, not contingent as to


25 liability and not subject to bona fide dispute amounting to, in
26 the aggregate, in excess of the value of any lien held by them on

27 the Debtoris properties securing such claims, to at least


28

INVOLUNTARY PETITION
- -- -------------

...
, .
1 $5,000.00. The nature and amount of Petitioners I claims are as
2 follows:-
3 (a) Federal Express Corporation holds a claim
4 exceeding $32,000,000.00 for moneys advanced to Debtor, which
5 moneys should have been used for remission to the appropriate tax
6 authorities, but were not so used. On account of Debtor's
7 actions, in excess of $32,000,000.00 is owed by Debtor to Federal
e Express corporation;
9 (b) Stanford University Hospital holds a claim
10 exceeding $1,700,000.00 for moneys advanced to Debtor, which
Z 11 moneys should have been used for remission to the appropriate tax
0
Z
Z ~ 12 authorities, but were not so used. On account of Debtorls
~ ~
U !;j ~ 13 actions, in excess of $1,700,000.00 is owed by Debtor to Stanford
~ lI.J <
c: -
~ ~ !;; ~ - 14 University Hospital;
. ~ f2 ~
~ :i '!
o~ u<l; ~
t:1'
15 (c) The Board of Trustees of The Leland Stanford ~l'
£... C c:5 ~
::O~~:::!
j ex:: 0 ~
~ ~ ~ 16 Junior University holds a claim exceeding $296,000.00 for mon~s~\
..... <
Z ~ E
0 z 17 advanced to Debtor, which moneys should have been used for i\1 ,' :0-'" ,
~
oct
LI) ir
Z
0 18 remission to the appropriate tax authorities, but were not so
cr:
~
19 used. On account of Debtor's actions, in excess of $.296,,000.00_
-~JcJ/';"J";-' _~-/,~,~/:iS
20 is owed by Debtor to The Board of Trustees of The Leland Stanford
21 Junior University.
22 2. The Debtor's principal place of business or
23 principal assets have been within this district for the 180 days
24 preceding the filing of this petition or for a longer portion of
25 the 180 days preceding the filing of this petition than in any
26 other district.

27 3• The Debtor is a person against whom an order for


28 relief may be entered under Title 11, United states Code.

INVOLUNTARY PETITION
2
1 4.- The Debtor is generally not paying its debts which
2 are not subject to bona fide dispute as they become due as
3 indicated by the following: Debts alleged in paragraph 1 of this
4 petition are due, and notwithstanding due demand that payment be
5 made, no payment has been promptly made by the Debtor.
6 WHEREFORE, Petitioners pray that an order of relief be
7 entered against Debtor under Chapter 11, Title 11, United states
8 Code.
9 & McKINNON
10

Z 11 BY---r-~~+-~ _ _---'--+- _
a MI EL H. AHRENS
z
z :;:;
12 Attorneys for Creditor
~ ~ FEDERAL EXPRESS CORPORATION,
u"'~
LlJ ~ 13 a Delaware corporation
~ ~ ~ Address:
u. I;; Z.
o ~ c:: 2S 14 505 Montgomery Street
>- 0
~ ~ '"'"
~ :i :6 San Francisco, CA 94111-2514
o~ <: ""
U Q>
15
o c5 -~
I-
::
o
,£.
z.h;S: McCUTCHEN, DOYLE, BROWN &
:s c::::
~ ~
0 -
16 ENERSEN
::Cl '" '<
z ~ ~
a
VJ
z
<
17
Ul
Z
a
c::;
18
co
19 Attorneys for STANFORD
UNIVERSITY HOSPITAL
20 Address:
Three Embarcadero Center
21 San Francisco, CA 94111

22 McCUTCHEN, DOYLE, BROWN &


ENERSEN

ByR~~
23

24
Attorneys for THE BOARD OF
25 TRUSTEES OF THE LELAND
STANFORD JUNIOR UNIVERSITY
26 Address: !I

Three Embarcadero Center


27 \MHA\99999\0900\~ETJrtDN.PET San Francisco, CA 94111
4218-~aLters

28

INVOLUNTARY PETITION
3
'.

1
.,\ ...

VERIFICATION
2
I, /JI,:.-.::..:....:.~----=-C__I/.'-A...;....~_z
__ __h_$"~_·_~_11/--'-~
__/l~·~A , one of
3
the attorneys for the petitioner named in the forgoing
.4
petition, declare under penalty of perjury that the
5
foregoing is true and correct according to the best of
6
my knowledge, information and belief.
7
Executed on March 7-0 , 1991.
8

10

Z 11
0 , one of
Z
Z -:r 12
~ ~ the attorneys for the petitioner named in the forgoing
Uti~ 13
~ ~ :: petition, declare under penalty of perjury that the
~ l;; Z
~~>-§8 14
J:::: ~ N
l.lJ - -.:r foregoing is true and correct according to the best of
~o ~
u ~~.
_ t:l c:5;r. 15
<O~ii5! my knowledge, information and belief.
..J c::: E 0
CO ~ z 16
Zs:la::
.... <: Executed on March ~Q , 1991 .
L:..
0 z 17
l.f:)<t
tJ:l
Z
0 18
c:::
~
19

20 I, R~ ~ d , one of

21 the attorneys for the petitioner named in the forgoing

22 petition, declare under penalty of perjury that the

23 foregoing is true and correct according to the best of

24 my knowledge, information and belief.


25 Executed on March ~ 1991.

26

27

28
-302 [REV. 3-10-82)

- 1 -

FEDERAL BUREAU OF INVESTIGATION

Date 01 transcription
03/21/91

~__~__~~ • left message at San Francisco


Federal Bureau Investigation 0 ice and was recontacted by
special agent by telephone. I Iwas aavised of the
identity of the interviewing agent and the nature of the
interview. She provided the following information:
I Istated the~ I contacted her company _
exactly 2 weeks from today ago and warned of the potential Ips.s / t',! ,/
of money going to Hamilton Taft and Company (HT) I 1__ i/1 / ,lJ- 0

advised tJa: ~al1me1!s to HT after 12/31/90 were at risk.:::>'l(s a b7C


result of _ ~ warning Scott Paper requested all canceled
checks an eposit receipts to Security Pacific Bank from HT
proving that the payroll taxes paid HT actually were paid out to
the appropriate governmental agencies for 1990 and 1991.-
. HT provided Scott Paper with all canceled checks and
deposit receipts for 1990. HT could not proviae deposit receipts
for the two weeks ending 1/18/91 and 1/25/91. I I
estimates that the two deposits missing in January total $701
million dollars.
I Istated that Scott Paper requested print outs
from the IRS indicating w~at federal payroll taxes have been paid
on Scott Papers tax account. T}~~~,._~~r~".~p_l-er,.,.tQ,"",~SC:,9)dn:t;;.".£9,~",.~9.J.1
l2-~~~~.E;t~."j,m~o:9-~§,.,.}~,p~.;,,,~",~-,,..hq~gJ?J~£l<;.J except- for 1/18/91 ana 1/25/91
payments (7.1 million).
~__~~~~~ stated that scott paper has not.determined
if any of the 5% hold back amounts are loss or not. If these
hold back payments are loss that would increase Scott paper's
exposure to around 10 million dollars. I I stated also
that the Rhode Island and New Jersey state tax payments have yet
to be verified.
I (feared that these missing monies went into
Connie Ar"stong.s Texas corporations for his use. She stated
that the Federal Bureau of Investigations mal contact her at home
or use Scott Paperls attorney in california, I

Invc5tigation on 03/21/91 a.t San Francisco, California::lle ~ 196A-SF-9 3255--[-5"

n'J/.."/a1
,y _S_A
__W_i_l_l_a_r_d_L_._H_a_t_c_h_e_r__J_r_o
1 Datc die

This document contains neither recommendation' nor conclusions of the FBI. It is the propel
it and its contents are nol to be distributed outside your agency.
eRe". 1l-lS-B3)

96A-SF-93255

Dntinuation of FD-302 of -J -'"-----------, On 03/21/91 . Page -2.


---~-

b7C

~ ~~ located in San Francisco.

-------_.- "-, -'-'-- _. _.- ,- - -'.---- ._-


<101 (REV. 3-10-82)

- 1 -

FEDERAL BUREAU OF INVESTIGATION

Date of transcription
03/21/91

____~__~~__~. left message at San Francisco


Federal Bureau Investigation 0 ice and was recontacted by
special agent by telephone. , 'was advised of the
identity of the interviewing agent and the nature of the
interview. She provided the following information:
I ~ stated the I I contactec1 her company _
exactly 2 weeks from today ago and warned of the potential loss ~ .~ !

of money going to Hamilton Taft and Company (HT). I L----. ;;/; V j

advised tJa: naHWE''lts to HT after 12/31/90 were at risk.-----A:s a b7C


result of . _ jS warning Scott Paper requested all canceled
checks an eposit receipts to Security Pacific Bank from HT
proving that the payroll taxes paid HT actually were paid out to
the appropriate governmental agencies for 1990 and 1991.
. HT provided scott Paper with all canceled checks and
deposit receipts for 1990. HT could not provide de~~sit receipts
for the two weeks ending 1/18/91 and 1/25/91. I _ ~
estimates that the two deposits missing in January otal $7.1
million dollars.
I I stated that Scott Paper request~d print outs
from the IRS indicating what federal payroll taxes have been paid
on Scott Papers tax account. They were ablei::q a.c:cognt ~qr. a).l
J?~9Y.TS~p:t~ .. (rn:hp~,?.the5% 119lc;1l:l~,c;k) except for 1/18/91 and 1/25/91
payments (7.1 million).
~ ~I stated that Scott Paper has not determined
if any of the 5% hold back amounts are loss or not. If these
hold back payments are loss that would increase Scott paper's
exposure to around 10 million dollars. I 'stated also
that the Rhode Island and New Jersey state tax payments have yet
to be verified.
r Ifeared that these missing monies went into
Connie Ar~stongis Texas corporations for his use. She stated
that the Federal Bureau of Investigations ma¥ contact her at home
or use Scott Paper's attorney in california, L I

InveslJgalion on 03/21/91 at San Francisco, Californiaolle II 196A-SF-9325S--C->

""'._'._'. '."--'-""..., __S_A_W_i_l_l_a~r_d_L_._H_a_t_c_h_e_r_~_J_r_._~ Date dictll.ted 03/21/91

This document contains neIther recommendaUons ncr conclu:slons of the FBI. It is the property 01 the FBI and i.s loaned lo your agency:
it Ilnd its contents are not to be distributed outside your agency.
(Rev. 1l-lS-B3)

96A-SF-93255

ontlnuationofFD-30201 ---J ... ---~-- __--Ion 03/21/91 IPage~_2_ _

~ ~ located in San Francisco.

--------- ----_.'-
.. -
"-?6 ~J1 ..f7.;s)
.. .., .. :' FBI
.:-f:~SMIT VIA:
, leletype
PRECEDENCE:
o Immediate
CLASSIFICATION:
o TOPSECRET
facsimile o Priority o SECRET
0_------ o Routine o CONFIDENTlAL
- o UNCLAS EFT
o UNCLA-S",-
0
} /
,··,;;?·lJS,IlJl
Date ;I -7../ I

, TO LEGAT aERN/PRIORITY/
2 ~
BT ~

3 UNClAs ~ ~
";S
~
'~,t
1t
4 CITE: //3790// "
',.
~~
5
6 SUBJECT: CONNIE C ARMSTRONG JR AKA, CHIP ARMSTRONG, JR D~

7 HAMILTON TAFT AND COMPANY, ONE MARKET PLAZA, 32ND FLOOR, SPEAR

S STREET TOWER," SAN FRANCISCO, CALIFORNIA 94105; MAIL FRAUD, FRAUD

9 f3Y WIRE (A), TAX FRAUD; 00: SAN FRANCISCO.

REFERENCE SERIES OF TELEPHONE CALIS BETWEEN SAN FRANCISCO


10

11
s~ lAND DALLAS DIVISION AGENTS ON

b7C
12
FOR THE INFORMATION OF LEGAT BERN, SAN FRANCISCO HAS
13
ITIATED A FRAUD BY WIRE INVESTIGATION BASED ON INFORMATION
14
_ _ _ _ _ _ _ _ _ _ _ _ _1 THE FORMER CONTROLLER OF
15

16 ." -....._--
17 Anti
T
18 •
~ .-
19

---01 at,
I - I • I J

&) 1\. ..

Z1

<Q>v ~ \ \(\<.~
Approved. Transmitted _ _~-:---_--::==---:- Per _~......:,.:..;..:::.=====:::::..-
(Number) (T..mel----(,oilil.I.IL!t:::~ ... I=tP:
- i
r r ,-
J
J' ... .r
~c-----_....I
....
fD-~ f'¥.~"."'-88)
....
. ,.
FBI
.
I

-]"RANSMIT VIA: PRECEDENCE: CLASSIFICATION:


o Teletype o Immediate o TOP SECRET
o Facsimile o Priority o SECRET
0_------ o Raubne o CONFIDENTIAL 112-:1~·"1£.>~J""/ t1/'If7frOjJ£./I....~~ ...~
o UNCLAS E F
o -C~ClJ\S . " th)~r /lidtJ t:/C~ "j. j1ft 0y.,'1-"/;.:"
p
Date -- 'I.; IJJ /11; I ONe;..,J'.r/J;l.

i6 t:1Aa't.
"I HAMILTON TAFT IN SAN FRANCISCO WHO HAS ALLEGED THAT CAPrIONED

2 SUBJECT ARMSTRONG HAS EMBEZZLED APPROXIMATELY


I
$100 , 000,000 OVER
. . . . -...........I' •• Ol:"~Jo.:;.·iI"l·~.. -, ,I··~ •.;_~-. ".-:-v- .... ;. 1:'*"' ':.~S·~··.;.~r~~J/

3 THE PAST THREE YEARS FROM ITS CLIENTS.

4 HAMILTON TAFr IS A FIRM WHICH CONTRACTS WITH MANY OF

5 AMERICA I S FORTUNE 500 COMPANIES TO COLLECT MONIES IN A LUMP SUM

6 AND THERE.AFTER PAY VARIOUS FEDERAL STATE AND LOCAL TAXING

7 AUTHORITIES FOR TAXES DUE AND OWING BY THE CLIENTS OF HAMILTON

B TAFT • ACCOlIDING TO I , HAMILTON TAFT S CLIENTS USUALLY I


b7C
9 WIRE TRANSFERRED MILLIONS OF DOLLARS TO ONE OF HAMILTON TAFT'S

BANK ACCOUNTS IN SAN FRANCISCO AFTER WHICH A CHECK WOULD BE


10
ISSUED BY HAMILTON TAFT TO WHATEVER TAXING AUTHORITY WAS OWED
11
ONEY.
~
12
HAMILTON WAS REQUIRED TO FORWARD THIS MONEY TO THE TAXING
13
UTHORITY AT THE END OF EACH PAY PERIOD BUT WAS HELD ACCOUNTABLE
14
o THE IRS ONLY AT THE END OF EVERY THREE MONTHS. ARMSTRONG
15
GEDLY KEPI' MANY OF THESE PAYMENTS FROM THE FIRST PAY PERIOD
16
F THE QUARTER FOR HIS OWN USE, AND AT THE END OF THE QUARTER
17
N HE HAD TO REPORT TO THE IRS, HE WOULD BE SUBJECTED TO A TEN

18 ERCENT LATE PENALTY FROM THE IRS, BUT THE CLIENTS WOULD NOT

19 ENERALLY BECOME AWARE OF THE IRS LATE NOTICE AND/OR PENALTY


20

21

Approved. - - - _ . - - - -
Transmitted
(Number)
:-_--==__~
(Tame)
Per
-----------
-
'"' -
....
, fD1S ~J1.f/-88) /'I
. .... FBI
.
-.JRANSMIT VIA: PRECEDENCE~ CLASSIFICATION:
[J Teletype CJ Immediate o TOP SECRET
o Facsimile o Priority o SECRET
0_------ o Routine o CONFIDENTIAL
o UNCLAS EFT 0
o UNCLAS
Date --------1
APAGE THREE
1 ASSESSMENT BECAUSE MANY OF THEM HAD GIVEN HAMILTON TAFT A POWER

2 OF ArrTORNEY WHICH AMONG OTHER THINGS AUTHORIZED ALL

3 CORRESPONDENCE TO GO TO HAMILTON TAFT AND NOT TO THE CLIENT. THE

4 LATE PENALTIES WERE ALLEGEDLY PAID WITH OTHER CLIENT'S FUNDS

5 WHICH WERE ARRIVING AT HAMILTON TAFT AND NOT TO THE CLIENT. THE

6 LATE iJENALTIES WERE ALLEGEDLY PAID WITH OTHER CLIENT I S FUNDS

7 WHICH WERE ARRIVING AT HAMILTON TAFT ON A CONTINUOUS BASIS. IN


.
B ESSENCE 1 -.11 IS STATING THAT HAMILTON TAFT WAS RUNNING A

9 "PONZI SCHEMEti OF CONSIDERABLE MAGNITUDE WHICH REQUIRED MORE AND

ORE MONEY TO KEEP IT GOING.


10
b J1'""t
J , -'

_ _ _---IILEFT HAMILTON TAFT ON FEBRUARY 11, 1991 AND ON


11
11, 191 THROUGH HIS ATTORNEY HE FILED A "WHISTLEBLOWER"
12
WSUIT IN FEDERAL DISTRICT COURT IN SAN FRANCISCO UNDER THE
13
TITLE 31, USC SECTION 3730.
14
ON MARCH 15, 1991, ALL EDITIONS OF THE WALL STREET JOURNAL
15
A FRONT PAGE ARTICLE DESCRIBING SOIDOOFF I S ALLEGATIONS. ON
16
CH 16, 1991 THROUGH MARCH 21, 1991, THE SAN FRANCISCO
17
SPAPERS RAN FRONT PAGE STORIES ON HAMILTON TAFT AND SOLODOFF' S
18 GATIONS.
19 FOR THE INFORMATION OF LEGAT BERN I ARMSTRONG IS A WMA, DOE

Transmitted _ _-------==---=-- Per ~~--


Approved. - - - - - - - (Number) rnme)
196A-SF-93255
TPR:tpr

~ T~h~e following investigation was conducted by SAr


'at San Francisco, California on March 26, 19~~'1 ~
-----~~~...:..:;.:.:....::..:.=

7e r l
united states customs was contacted
telephonically and was provided with information which ~a aoroDo
to enter into the Treasury Enforcement Computer (TEe). l
agreed to enter the names of CONNIE C. ARMSTRO T. date of
l,
birth 6-9-54 U.S. Pass art number G611256 and
~nto the TEe system.

I I
also placed a notation to notify s~__~~
______~Iirnrnedlately if either of the two were stopped by U.S~
~
Customs. b7C
-- - ......
UIl eOiJipcltly 15; Cah:1I1g wi ilt'~dli",1iS tbr-a -----~--- - ....
lDanticlp;3"tion of a p0ssible steel slrikf'.
Thomas J. Usher, president of USX's
plate mill at its TExas Works in Baytown,
Texas, which has been idle since 1986. to the Middle
charges. Also, the Federal Bureau of In-
Bankruptcy Judge I vestigation said it is investigating the mat-
ter.
Once a trustee takes over within the < .,
t

,iii '--,
,

Appoints Trustee next few days, the big question will be


Whether Hamilton Taft's asSE'ts, which in- 't' ·'l.araitc
clude $69 million in notes to Mr, Arm'
~ For Hamilton Taft strong's companies with holdings in dis-
tressed real estate and oil and gas operat-
ing leases, can make good on the taxes and
By RALPH T. KINe JR. . related penalties that Hamilton Taft con-
, St""f Reporter of TKE W ALL STnE~ JOURNA.L tracted to pay.
~:}
SAN FRANCISCO - A federal bank· The customer with the biggest potential f"- . . . . . " •• - n ••

ruptcy court judge appointed a trustee to exposure Is Federal Express Corp., which
supervise Hamllton Taft & Co., a processor has provided for $31.6 million of losses.
of payroll taxes accused of diverting as Other customers that have identified po-
much as SIOO million of customer funds in tential losses include Tandem Computers
an allegedly fraudulent scheme. Inc. ($1.2 million J, Stanford University
The decision by Judge Lloyd King is un- Hospital and Stanford University ($3.8 mil-
usual since Hamilton Taft has not sought lion), Neiman Marcus Group ($500,000).
bankruptcy protection, and the judge Other customers facing losses of more
hasn't ruled on a motion filed by cus· than $1 million, according to court docu-
tomers for an involuntary Chapter 11 reor- ments. include Sun Mlcrosystems Inc.,
ganization. The judge said the "extreme Sony Corp., Scott Paper Co., Clarls Corp.,
remedy" was needed because of "incom- S & S Credit Cos., Volume Shoe Corp.,
petence and mismanagement" at Hamilton Commercial Credit Corp., R. R. Donnelly -"~;:'
.Taft and because "the potentiaJ for mis- & Sons, Blue Cross & Blue Shield of Texas, '~'
chief is great." Verbatim, and sandia Labs.
A former Hamilton Taft officer in mid·
March told some of the company's largest
Mark MacDonald, an attorney repre-
senting Hamilton Taft, suggested that cus-
'.' <~~Luxor*
customers of the diversion. Since then, a tomers are partly to blame for the mess -'''.''''.: :- ...J',
raft of lawsuits have been filed in San because they had nQt insisted on contrac-
• Francisco federal court against Hamilton tual protections. "Where was the polic-
Tafl, its owner, Connie C. "Chip" Arm' ing?" Mr. MacDonald said. "They were
",...strong Jr., and various affiliate companies attempting to get a valuable service for as
ovmed or controlled by Mr. Armstrong. cheap a cost as they could."
The suits allege Racketeer Influenced Replied Judge King: "One thing I look
.and Corrupt Organizations Act violations, for in cases like this is denial. and that ap-

.-----------.
breach of contract, fraud, and other pears to be absent. II

SEALED BID SALE


16 PRL\ \E HOUSTO.' L-\:--':O TRACTS
809" SELLER FIK-\,"CIi\:C A\:-\ILABLE

Srriltegically [Mared del c[opmclIl alld i'll'cstmclH


J

parceL, throughout the HOl/SIMI mctrop(1!itall arca.

fUi'S indl4de mi:>.:cd-ll.\c C<1l1ll1lcrcial, residential,


SU.\!...i::cstcd
hotel, retail, t1llliti.jiwriJ}' and restaurant.
Select properties include: • L",
-----
17.3 Acres - AdJ.1cent Freeway ~.~
L1.'/ A.d:illg Pritt: S6,405,49,,' RI'SITI'f Pr;c/': S2,562, 119
f'.6 Ar:re .. - NC:lr InrnCOl1tIlH'lltal Airport
.. /..;. ~ P,;" s:;,:!·r,f,llf, RI'-(/,I'/' Pn(/,. $824,155

27<) f\cr~', - II, .. '..1\ hlllll.,,·C


, I,' .. ,rrt'/ /"/<1 $(I,(rt"lJ:!1I
196A-SF-93255
TPR:tpr

~ T~h~e following investigation was conducted by SAr


lat San Francisco, California on March 26, 19~~JI ~
----'"""'i==-:.:..:.........:.:.:-..:....:~

7C I l
united states customs was contacted
telephonically and was provided with information which ~Q aarQQd
to enter into the Treasury Enforcement Computer (TEC). L
agreed to enter the names of CONNIE C. ARMSTRO date of
l
birth 6-9-54 U.S. Pass ort number G611256 and
lnto the TEe system.

I I
also placed a notation to notify s~
_______Iimmedlately if either of the two were stopped b-y~U-.=s-.------~
Customs. b'le

..!\..,
,....
b
M em orandum

To Date
SAC, SAN FRANCISCO (196A-SF-93255) 3/28/91
From
s~I....--_ _ b7C

Subject
CONNIE C. ARMSTRONG JR, aka,
CHIP ARMSTRONG,
DBA HAMILTON TAFT AND COMPANY
1 Market Plaza, Suite 3200 Spear street Tower
San Francisco, California 94105
Mail Fraud,
Fraud by Wire (A),
Tax Fraud
00: San Francisco'

The purpose of this memorandum is to request that a


forfeiture file be opened and designated sub (0) out of case file
196A-SF-93255. The purpose in requesting this sub file is to
alert the San Francisco Division Forfeiture unit to the
possibilities of potential seizure of assets purchased by
captioned subject ARMSTRONG with funds which were not his to
invest a (!:t is suggested that members of the forfeiture unit who
may be assigned to work with the case agent in the
ARMSTRONG/HAMILTON Taft matter should acquaint themselves with
the general overview of this case via a review of numerous
articles which'fii:ive appeared 'in :i:>ot:h ,th,e., Walls:t:l:"eet Journal and
loc::a,J.... :me.qJ~, ,9,9yerage "These. 'arffcles""ar-e'''"all'- contained in
a sub L
of'/this case file.

iSl
~-196A-SF-93255
~)
(Sub 0)
b7C

~196A-SF-93255 (Main)
1-66-5437 (Sub J)
PKM/ls
(5)

I- ft 0>
IRbfl> .!$Jt"

FELDMAN, WALDMAN & KLINE
A Professional Corporation
2 ~ATRICIA S. MAR
L.J. CHRIS MARTINIAK
3 2700 Russ Building
235 Montgomery street
4 San Francisco, CA 94104
Telephone: (415) 981-1300
5
Attorneys for Trustee
6 Frederick s. Wyle
7

8 UNITED STATES BANKRUPTCY COURT


9 NORTHERN DISTRICT OF CALIFORNIA
10 In re ) BANKRUPTCY NO. 91-31077 LK
)
11 HAMILTON TAFT & COMPANY, ) Chapter 11
)
12 Debtor. )

13
~----------------))
FREDERICK S. WYLE, Trustee in ) Adversary Proceeding
14 Bankruptcy of Hamilton Taft & } No.
Company, )
15 )
plaintiff, )
16 )
v. )
17 )
CONNIE C. ARMSTRONG, JR.; )
\8 THE REMINGTON COMPANIES, INC.: )
WINTHROP REALTY COMPANY: CCA )
19 HOLDINGS, INC. j CCAJ CORPOR- )
ATION; CHASE DEVELOPMENT CORP.; )
20 CHAYSON MORTGAGE AND INVESTMENT )
COMPANY; CAL-PACIFIC MANAGEMENT )
21 CORP.; C.R. ACQUISITIONS; DEI, )
INC.; DRESDNER FINANCIAL )
22 MANAGEMENT CORPORATION; DRESDNER )
ENTERPRISES, INC.; DRESDNER )
23 ,PETROLEUM, INC.; H.T. INTER- )
NATIONAL, INC.; SUISSE TEXAS, )
24 INC.; KNIGHTSBRIDGE COMPANIES, )
INC.; and KNIGHTSBRIDGE GUARANTY )
2S COMPANY, )
I Defendants. )
26
------------------->
FELDMAN, WALDMAN & KLINE
A Professional corporation
2 PATRICIA S. MAR
L.J. CHRIS MARTINIAK
J 2700 Russ Building
235 Montgomery street
San Francisco, CA 94104
Telephone: (415) 981-1300
5
Attorneys for Trustee
6
Frederick s. Wyle

8 UNITED STATES BANKRUPTCY COURT

9
NORTHERN DISTRICT OF CALIFORNIA

10
In re ) BANKRUPTCY NO. 91-31077 LK
)
11
HAMILTON TAFT & COMPANY, ) Chapter 11
)
Debtor. )
12
-----------~-------)
)
J 3
FREDERICK S. WYLE, Trustee in ) Advecsary Proceeding
Bankruptcy of Hamilton Taft & No
9~ K
14
Company,
CO INT FO .
15
Plaintiff, ) 1. Recovery of Fraudulent
) Transfer Pursuant to
16
v. ) 11 U.S.C. § 548 and
) California Civil
17
CONNIE C. ARMSTRONG, JR.; ) Code § 3439
THE REMINGTON COMPANIES, INC.; ) 2. Constructive Trust
\8
WINTHROP REALTY COMPANY; CCA ) 3. Turnover of Property
HOLDINGS, INC.~ CCAJ CORPOR- ) or the Estate Under
19
ATION; CHASE DEVELOPMENT CORP.; ) 11 U.S.C. § 542
CHAYSON MORTGAGE AND INVESTMENT ) 4. Injunction
20 COMPANY; CAL-PACIFIC MANAGEMENT ) 5. Conversion
CORP.; C.R. ACQUISITIONS; DEI, ) 6. Breach of Fiduciary
21 INC.; DRESDNER FINANCIAL ) Duties
MANAGEMENT CORPORATION; ORESDNER } 7. Breach of Contract
22 ENTERPRISES, INC.; DRESDNER )
PETROLEUM, INC.; H.T. INTER- )
23 NATIONAL, INC.; SUISSE TEXAS J )
INC.; KNIGHTSBRIDGE COMPANIES, )
211 INC.: and KNIGHTSBRIDGE GUARANTY )
COMPANY, \
I
25 Defendants. )

26 --~-----------------)
• •
Plaintiff Frederick S. Wyle l Trustee, alleges as
2 follows:
]
THE PARTIES
J 1. Plaintiff is the duly appointed and acting trustee
5 in this case.
6 2. Hamilton Taft & Company, Inc. ("the Debtor") is a

7 California corporation with its principal place of business in San


8 Francisco, California.
9 J. Plaintiff is informed and believes and thereon
10 alleges that defendant Connie C. Armstrong, Jr. ("Armstrong") is
\1 the chairman and sale shareholder of the Debtor l and is a resident
12 and citizen of the state of Texas.
13 4. Plaintiff is informed and believes and thereon
14 alleges that defendant The Remington Companies, Inc. ("Remington")
15 is a Texas corporation with its principal place of business in
16 Dallas, Texas, and is owned or controlled by, and affiliated with,
17 Armstrong and his affiliated entities.
18 5. Plaintiff is informed and believes and thereon
19 alleges that defendant Winthrop Realty Company ("WinthropH) is a
20 Texas corporation with its principal place of business in Dallas,
21 Texas, and is owned or controlled by, and affiliated with,
22 Armstrong and his affiliated entities.
23 6. Plaintiff is informed and believes and thereon
24 alleges that defendant CCA Holdings, Inc. (HCCA Holdings H ) is a
25 '! Texas corporation with its principal place of business in Dallas,

26

C()otPLAINT -2-
• •
Te~as,and is owned or controlled by, and affiliated with,

2 Ar~strong and his affiliated entities.

J 7. Plaintiff is informed and believes and thereon

alleges that defendant CCAJ corporation ("CCAJ") is a Texas

5 corporation with its principal place of business in Dallas, Texas/

6 and is owned or controlled by, and affiliated with, Armstrong and

7 his affiliated entities.

8 8. Plaintiff is informed and believes and thereon

9
alleges that defendant Chase Development Corp. (HChase

10
Development") is a Texas corporation with its principal place of

11
business in Dallas, Texas, and is owned or controlled by, and

affiliated with, Armstrong and his affiliated entities.


12
9. Plaintiff is informed and believes and thereon
1J
alleges that defendant Cal-Pacific Management Corp. ("Cal-
\4

Pacific l l ) is a Texas corporation with its principal place of


15
business in Dallas, Texas, and is owned or controlled by, and
16
affiliated with, Armstrong and his affiliated entities.
17
10. Plaintiff is informed and believes and thereon
18
alleges that defendant Chayson Mortgage and Investment Company
\9
("Chayson") is a Texas corporation with its principal place of
20
business in Dallas, Texas, and is owned or controlled by, and
21
affiliated with, Armstrong and his affiliated entities.
22
11. Plaintiff is informed and believes and thereon
23
alleges that defendant C.R. Acquisitions, Inc. ("C.R.
24
Acquisitions#) is a Texas corporation with its principal place of
25

26

C~PLAlNT -3-

business in Dallas, Texas, and is owned or controlled by, and

2 affiliated with, Armstrong. and his affiliated entities.

J 12. Plaintiff is informed and believes and thereon

4 alleges that defendant DEI, Inc. ("DEI") is a Texas corporation

5 with its principal place of business in Dallas, Texas, and is

6
owned or controlled by, and affiliated with, Armstrong and his

7
affiliated entities.

B
13. Plaintif: is informed and believes and thereon

9
alleges that defendant Suisse Texas, Inc. ("Suisse Texas") is a

10
Texas corporation with its principal plac9 of business in Dallas,
Texas, and is owned or controlled by, and affiliated with,
I!
Armstrong and his affiliated entities.
/2
14. Plaintiff is informed and believes and thereon
13
alleges that defendant H.T. International is an entity owned or
\ .d
controlled by, and affiliated with, Armstrong and his affiliated
15
entities.
16
15. Plaintiff is informed and believes and thereon
17
alleges that defendants Dresdner Enterprises, Inc., Dresdner
\8
Petroleum, Inc., and Dresdner Financial Management corporation
19
(collectively HDresdner fl ) are Texas corporations with their
20
principal place of business in Dallas, Texas, and are owned or
21
controlled by, and affiliated with, Armstrong and his affiliated
22
entities.
23
16. Plaintiff is informed and believes and thereon
24
alleges that defendants Knightsbridge Companies, Inc. and
25
Knightsbridge Guaranty Company (collectively "Knightsbridge") are
26

C~PLAIIH -4-
• •
Texas corporations with their principal place of business in

2 Dallas, Texas, and are owned or controlled by, and affiliated

3 with, Armstrong and his affiliated entities.

4 17. Defendants Remington, Winthrop, CCA Holdings, CCAJ,

5 Chase Development, Cal-Pacific, Chayson, C.R. Acquisitions, DEI,

6 Suisse Texas, H.T. International, Dresdner and Knightsbridge will

7 sometimes collectively be referred to as the #Armstrong

8
Companies. II

9 JURISDICTION AND VEtWE

10 18. This is an adversary proceeding brought pursuant to

!1
Bankruptcy Rule 7001, 11 U.S.C. §§541(a), 542, 544, and 548.

12
19. This Court has jurisdiction of this adversary

13
proceeding pursuant to 28 U.S.C. §§151, 157, and 1334. Venue is

proper pursuant to 28 U.S.C. §1409.


14
20. This adversary proceeding is a core proceeding
15
pursuant to 28 U.S.C. §157 and this Court may enter a final
16
jUdgment herein.
17

18
GENERAL ALLEGATIONS
21. Plaintiff is informed and believes and thereon
19 'I

alleges that an involuntary bankruptcy petition was filed against


20
the Debtor on March 20, 1991. Prior to filing the petition, the
2\
Debtor operated as a ta~ deposit and payment service. The
22
plaintiff, the Chapter 11 Trustee in this case, was appointed on
23
March 26, 1991. The Debtor, by and through the Trustee, continues
24
to operate a payroll tax deposit and payment service.

CQHPLAINT -5-
22.
• Plaintiff is informed and believes and thereon

2 alleges that Armstrong is an insider of the Debtor. Armstrong ~33

J the sole shareholder and chairman of the Debtor from March 1939,

J when he purchased the Debtor, until the petition was filed.

5 Armstrong owns or controls all of the Armstrong companies.

6 23. On various different dates over the period in which

7 Armstrong controlled the Debtor large sums of money belonging to

B the Debtor were transferred directly or indirectly to various of

9 the Armstrong Companies, including without limitation Dresdner,

10 Remington, Knightsbridge, and Winthrop. For example, Debtorls

11 books and records show that (a) in January and February of 1991

12
approximately $11,000,000 was transferred from Debtor directly to

13
Knightsbridge, (b) Debtorls funds were transferred to an account

1J
at Merrill Lynch which were then transferred to Bank One in Dallas

15
and then transferred to Knightsbridge, and (c) on numerous dates

16
in 1990 funds were transferred from Debtor to the Merrill Lynch

account and then "invested" in various of the .Armstrong Compani~s


17
such as Dresdner, Remington, Winthrop, and Knightsbridge. Such
\8
transfers from Debtor directly or indirectly to Armstrong
\9

Companies will be referred to herein as "Affiliate Transfers".


20
24. All, or virtually all, of the Affiliate Transfers
21
came from funds being held by Debtor _.~paymenj;,sf tax:
22
..9 b .lig a ~ion~.-9..~__Q~_bto c§.~~i_~ n ts _
23
25. In October 1990, the internally prepared financial
24
statements of the Debtor show an intercompany receivable of
25
$68,800,000 which evidences that the total Affiliate Transfers
26

COMPlAUH -6-
• •
were at least in that amount. Plaintiff and Plaintiff's

2 accountant have searched the files of Debtor and questioned ~te

3 relevant staff of Debtor, but have found no collateral, securi~j

agreements, notes, or interest payments relating to these

5 transfers.

6 26. In 1990, Debtor's internally prepared financial

7 documents reflect short term indebtedness owed by Knightsbridge to

8 Debtor in an amount of $8,175,021.55 reflecting apparent transfers

9 in approximately that amount from Debtor to Knightsbridge.

10 Plaintiff and Plaintiff's accountant have searched the files of

II Debtor and questioned the relevant staff of Debtor, but have found

12
no notes, agreements, interest payments, collateral or security

13
relating to such transfers.

1A
27. Plaintiff is informed and believes and alleges on

\5 that basis that Armstrong caused the Affiliate Transfers to be

made.
16

28. Plaintiff is informed and believes and alleges on


l7
that basis that some of the funds comprising the Affiliate
18
Transfers were further distributed from the initial recipient
19
company to one or more other companies among the Armstrong
20
2, Companies.

29. Plaintiff is informed and believes and alleges on


22
that basis that large sums of money ostensibly advanced by one or
23
more of the Armstrong Companies were used (a) to purchase, rent or
24
lease real property, goods or services for the personal use a~dJor
25
enjoyment of Armstrong, (b) to make investments or acquisitions
26

C~PlAINT -7-
• •
for the benefit of Armstrong, (c) to make large gifts, donatic~5.

2 or contributions at the direction and for the benefit of

3 Armstrong, (d) for a fund to protect against litigation or civil

J or criminal liability of Armstrong, or (e) for other purposes fc~

5 the direct of indirect benefit of Armstrong.

30. Plaintiff is informed and believes and alleges on

7 that basis that the Armstrong Companies that advanced large sums

8 of money referred to in sUbparagraph E immediately above (a) were

9 nat sufficiently profitable to generate such sums on their own

1O operations, and (b) were the recipients of large sums af money

) 1 directly or indirectly from Debtor as part of the Affiliate

!2 Transfers.

1] 31. Plaintiff has been informed of and believes the

14 following and on that basis alleges:

,5 a) Some or all of the Armstrong Companies that

16 received Affiliate Transfers were not profitable and that some of

17 the funds received from Debtor were used to pay operating expenses

18 of the recipient Affiliate Company.

19 b) Upon obtaining control of the Debtor,

20 Armstrong wired approximately $2 million from the Debtor to the

21 holding company for some of the Armstrong Companies. Out of these

22 funds, Armstrong retired a $600,000 note which the prior owners of

23 the Debtor had executed to Mr. Stanley Rosenberg and that

21:1 Armstrong had agreed to pay as the "price" for buying the Debtor.

25 c) In July, 1989, Armstrong transferred

26 approximately $3 million of funds belonging to the Debtor to


.-"._-

CQIi4PlAINT -8-
• •
Dresdner Enterprises, Inc., a company which formerly owned the

2 Debtor and is currently owned by Armstrong.

3 d) In August, 1989, Armstrong transferred $7

<1 million of the Debtor's money to an account of Dresdner

5 Enterprises, Inc. in order to purchase a shopping center that

6 Armstrong or one of the Armstrong Companies was buying.

...
I
e) In February, 1990 Armstrong transferred

B approximately $10 million of the Debtor's funds to Winthrop for

9 purchase of a showpiece ranch of about 2,000 acres for Armstrong's

10 personal residence. A loan in the amount of approximately $6.4

11 million was booked to Armstrong, who gave a deed of trust on the

12
property to Winthrop. Winthrop in turn assigned the deed of trust

13
to the Debtor. Portions of the $10 million from the debtor were

14
also used for improvements on Armstrong's ranch, including about

15
$2.4 million spent on a cutting horse arena, and for prepaid

16
interest on Armstrong's note.

17
f) In October 1990, the $68,800,000 intercompany

receivable was divided into two obligations. One obligation is


18
shown on the books of Debtor as a long-term "bond" in the amount
19
of $57 million. The other obligation is shown on the books of
20
Debtor as "affiliated notes" and a "long term debt" of $11.8
21
million from Winthrop to the Debtor. No repayment of these
22
intercompany receivables has been found by Plaintiff to be shown
23
on Debtor's books.
24
g) On an unknown date, Armstrong transferred some
25
$3 million of the Debtor's funds into one of the Armstrong
26

CQ\4PlAI NT -9-

Companies--Oresdner Petroleum--to purchase oil and gas leases i~

2 the name of Dresdner Petroleum.

3 h) Armstrong personally used funds believed ~o

J ~ave corne from the Debtor for unauthorized purposes. For example,

5 Armstrong purchased a Jaguar automobile for $105,000, and a Rolls

6
Royce for $135,000, at charity events. He also purchased a BMW

7 for $36,000 for a vice-president of Debtor, Christine Grembling

8
using Debtor's funds. He contributed hundreds of thousands of

9
dollars to political campaigns. He was drawing a salary of some

10
$21,000 every two weeks--over $500,000 a year--frorn his various

11
entities which were, in turn, drawing funds far operating expenses

12
from Debtor. He rented a suite at the Mark Hopkins Hotel in

San Francisco for approximately $160,000 per year. On information


13
and belief, all the funds for these purchases and expenses were
14
diverted from the Debtor.
15
i) In December 1988 , the Debtor had on its books
16
a series of unsecured illiquid loans to its then sale shareholder,
17
MaxPharma, Inc. or affiliates of MaxPharma, Inc. These illiquid
le
affiliate loans amounted to approximately $14 million. Additional
19

affiliate loans were thereafter made, increasing that amount. At


20
the time Armstrong purchased the Debtor in March 1989, there were
2\
approximately $14-1B million of affiliate loans on the Debtor's
22
books. The purchase by Armstrong closed on March 29, 1989. On
23
April 10, 1989, an Armstrong Affiliate, Dresdner Enterprises,
24
Inc., purchased the $18.9 million of intercompany receivables far
25
a note which was backed up by approximately $1.5 million worth of
26

CQMPLA[NT -10-
• •
collateral. Hence, on behalf of the Debtor, Armstrong appare~c~:·

2 had a period of time in which it could have sued MaxPharma's

] affiliates for this $18.9 million of receivables. Instead, one ~~

J the Armstrong Companies at Armstrong's direction, bought out those

5 receivables for notes having questionable value.

6 j ) After Armstrong acquired the Debtor, the

7 Debtor became the primary source of funding for all Armstrong's

B Dallas operations. The Armstrong Companies required some $400,000

9 a month in operating costs--alrnost $5 million a year--apart from

10 any operating costs incurred by the Debtor itself. The funds for

1i
such operating costs were obtained from the Debtor.

11
k) In March 1991 Armstrong invested $3,000,000 to

acquire ~arker Automotive.


13

1) Armstrong caused Debtor's funds to be


IJ
transfe~red to the Armstrong Companies by various methods,
15
including the following: One of the Debtor's employees would
16
write checks payable to federal, state or local taxing authorities
17
on behalf of the Debtor's clients. Those checks would be
18
processed through the Debtor's computer, and this would
19
automatically create a ledger entry reflecting that the check had
20
been issued. This ledger entry was necessary so that on the books
21
of the Debtor and other appropriate financial documents, it would
22
appear as if the check had actually been written. After the check
23
had been processed in this manner, the Debtor had another employee
24
physically pull such checks before the! were mailed or deposited
25
in a federal depository bank. Instead of transmitting such checks
26
~."""""

COHPlAfHT -11-
• '


to the taxing authorities, Debtor would physically hold the c~e2~3

2 for an average of three months, until the next quarter. At t~e

J end of the three-month period, the Debtor would then void the

original held-back check. A new "good" check would be issued

5 covered by sUfficient new funds. The new funds were obtained

6 through diversion of clients} funds. A new check would be issued

7 to the authorities, and this new check would have to be held, thus

8 repeating the process.

9
m) Armstrong's Dallas staff prepared a weekly

10
cash summary projecting the Armstrong Companies' cash needs for

the next several months. If


I' entities would soon run out of funds,
tt~ cash flow showed that the

Armstrong would transfer the


12
Debtor's funds to the Dallas office. These funds were then
13
distributed to whichever Armstrong Companies needed them.
14
COUNT ONE
15
(Recovery of Fraudulent Transfer Pursuant to § 548
and California civil Code §§ 3439.04 and 3439.05)
16
32. Plaintiff realleges and incorporates by reference
17
Paragraphs 1 through 31.
IB
33. To the extent that the claims herein arise pursuant
19
to Bankruptcy Code Section 544(b}, plaintiff is asserting the
20
rights of all of the unsecured creditors with an unsecured claim
21
allowable in the bankruptcy case, which were creditors at the time
22
of the complained of transactions.
23
34. Armstrong has caused current assets of the Debtor
24
to be transferred to defendants without adequate or fair, and
25

26
, .

COHPI.AIHT -12-
• •
often without any consideration, while retaining all of the

2 liabilities of the Debtor.

J 35. The transfers of assets from the Debtor to the

J defendants were made while the Debtor was insolvent and for less

5 than a reasonably equivalent value.

b 36~ By reason of the foregoing, the said transfers are

7 voidable pursuant to § 548(a) (2) of the Bankruptcy Code,

8 California Civil Code § 3439.05, and Bankruptcy Code § 544(b}.

9 37. The transfers of assets from the Debtor to the

10 defendants caused the Debtor to become insolvent and were made for

11 less than a reasonably equivalent value.

12
38. By reason of the foregoing, the transfers are

voidable pursuant to section 548(a) (2) of the Bankruptcy Code,


13
California civil Code § 3439.05, and Bankruptcy Code § 544(b).
14

39. The transfers of assets from the Debtor to the


15
defendants were made While the Debtor was engaged in business or a
16
transaction for which its remaining property was an unreasonably
17
small capital and were made for less than a reasonably equivalent
18
value.
19
40. By reason of the foregoing, the transfers are
20
voidable pursuant to § 548(a) (2) of the Bankruptcy Code,
21
California civil Code § ]439.04 and Bankruptcy Code § 544(b).
22
41. The transfers of assets from the Debtor to the
21
defendants were made without receiving reasonably equivalent value
24
in e~change for the transfers, and the Debtor intended to incur,
25

26

COMPLAINT -13-
• •
or believed or reasonably should have believed that it would

2 incur, debts beyond its ability to pay as they became due.

] 42. By reason of the foregoing, the transfers are

voidable pursuant to California civil Code § 3439.04 and § 544(b)

5 of the Bankruptcy Code.

6 4]. The transfers of assets from the Debtor to the

7 defendants were made while the Debtor intended to incur debts

8 beyond its ability to pay as such debts matured and for less than

9 a reasonably equivalent value.

10 44. By reason of the foregoing, the transfers are

11
voidable pursuant to § 548(a) (2) of the Bankruptcy Code.

45. The transfers of assets from the Debtor to the


/2
defendants were made with actual intent to hinder, delay or
13
defraud the Debtor's creditors.
14
46. By reason of the foregoing, the transfers are
\5
voidable pursuant to § 548(a) (1) of the Bankruptcy Code,
16
California Civil Code § 3439.04 and § 544(b) of the Bankruptcy
\7
Code.
18
WHEREFORE, plaintiff prays for relief as set forth
19
hereinbelow.
20
COUNT TWO
21 (Constructive Trust)
22
47. Plaintiff realleges and incorporates by reference
23
paragraphs 1 through 46, inclusive.
2.:1
48. By virtue of the wrongful acts described above,
25
defendants have been unjustly enriched and hold the Debtorls funds
26
",,,,,,,,,,-

COMPLAINT -14-

belonging to the Debtor's estate, and any proceeds of those f~~=s,

2 as well as any assets received from or acquired with money

3 received from the Debtor, as constructive trustees for the benef~~

4 of the Debtor's estate.

5 WHEREFORE, plaintiff prays for relief as set forth

6 hereinbelow.

7 COUNT THREE
(Turnover of Property Pursuant to § 542)
8

9 49. Plaintiff realleges and incorporates by reference

10 Paragraphs 1 through 48, inclusive.

II 50. Prior to the filing of the petition, the Debtor

12
transferred its property to defendants. Such property consisted

,3 of money and other property which is property of this estate, as

14
set forth hereinabove.

51. The property of the estate referred to in the


\5
preceding paragraph, or proceeds of such property,· is now in the
16
possession of the Defendants. Defendants have failed and refused
17
to surrender such property, or the proceeds thereof to the
18
trustee.
\9
WHEREFORE, plaintiff prays for relief as set forth
20
hereinbelow.
21
COUNT FOUR
22 (Injunction)
23
52. Plaintiff realleges and incorporates by reference
24
paragraphs 1 through 51, inclusive.
25
26

C().tPlA.IWT -15-
53.
• Plaintiff is entitled to injunctive relief purs~~~:

1 to Bankruptcy Rules 7001(7) and 7065, Bankruptcy Code § 105 and

3 F.R.C.P. §65, restraining defendants from destroying or other~ise

disposing or altering the property of the estate, and other

5 documents and information in defendants' possession, custody or

6 control concerning the use and transfer of the Debtor's funds.

7 Plaintiff is also entitled to injunctive relief ordering

8 defendants to immediately turn over to plaintiff all property of

9 the estate in defendants' possession, custody or control and to

10
refrain from dissipating, transferring, or encumbering assets or

11 funds received from the Debtor or acquired with the Debtor's

f2
assets or funds.

13
WHEREFORE, plaintiff prays for relief as set forth
hereinbelow.
14
COUNT FIVE
15
(Conversion)
16
54. Plaintiff realleges and incorporates by reference
17
paragraphs 1 through 53, inclusive.
18

19
55. By virtue of the acts set forth in paragraphs 23
through 31 hereinabove, Armstrong has converted assets of the
20

2, Debtor and by such conversion has greatly damaged Debtor.


WHEREFORE, plaintiff prays for relief as set forth
22
hereinbelow.
23

24

25

26

COMPLAI~T -16-
------------- - --

• •
COUNT SIX
(Breach of Fiduciary Duties)
2

J 56. ilaintiff realleges and incorporates by referen~e

4 paragraphs 1 through 55, inclusive.

5 57. As chairman of Debtor, Armstrong at all relevant

6 times owed fiduciary duties to Debtor.

7 58. By virtue of the acts and conduct set forth in

8 paragraphs 23 through 31 hereinabove, Armstrong has breached his

9 fiduciary duties owed to the Debtor in that he has knowingly

10 entered into numerous conflicts of interest, has engaged in self-

11 dealing to the detriment of the Debtor, has failed to act in the

12 best interests of the Debtor, has failed to control and manage the

13
assets of Debtor in a prudent manner, and has misappropriated

14
assets of the Debtor, and has by such breaches of fiduciary duty

caused great damage to the Debtor.


15
WHEREFORE, plaintiff prays far relief as set forth
16
hereinbelow.
17
COUNT SEVEN
18
(Breach of contract)
19
59. Plaintiff realleges and incorporates by reference
20
paragraphs 1 through 58, inclusive.
21
60. According to the books and records of the Debtor,
22
the Armstrong Companies have obligations totaling $68.8 million to
23
the Debtor under junk bonds, promissory notes or other
24
obligations. On information and belief, interest on such notes
25
and obligations due to the Debtor has not been paid by the
26
"---

Cc»-1PlAIWT -17-
• •
companies awing such obligations in violation of the terns and

2 conditions thereof and therefore are in breach of such

3 obligations.

J 61. Debtor has performed all Obligations on its part to

5 be performed except those excused by the conduct of defendants or

6 by virtue of other causes.

7 WHEREFORE, plaintiff prays for relief as follows:

8 1. For an injunction restraining defendants from

9 dissipating, transferring, or encumbering assets or funds received

10 from the Debtor or acquired with the Debtor's assets or funds.

Il 2. For an injunction or order requiring defendants to

12
surrender the property of the estate, or the proceeds thereof, to

13
the Trustee, and to render an accounting to the Court far the

1Ii
disposition by defendants of such property.

15
J. For the imposition of a constructive trust on

plaintiff's funds and any proceeds of those funds in defendants'


16
possession, custody or control and on any assets in defendants'
17
possession, custody or control received from or acquired wi~.1
18
money received from the Debtor.
19
4. For judgment against defendants for an accounting
20
of all payments and transfers of the Debtor's property by
21
defendants to the extent such transfers were fraudulent.
22
5. For an order avoiding all transfers to the
23
defendants to the extent such transfers were fraudulent.
24

25

26
"... .. _,--"
COMPLAINT -18-

6. For a judgment in the total amount avoided, ar:j

2 an order directing payment of such amount by defendants to

3 plaintiff, plus interest thereon at the legal rate.

J 7. For compensatory damages according to proof.

5 8. For exemplary damages in a sum sUfficient to dete~

6 defendants from similar conduct in the future.

7 9. For such other and further relief as this Court

8
deems appropriate.

9 Dated: tftJ 2./ 1'71 /


10
FELDl1AN, WA.LDMAN & KLINE
A Professional corporation
II

12 By
Cll/-J!
-" /~
I /~
/.
L.~. Chris Martiniak
13
Attorneys for Trustee
Frederick s. Wyle
lJ

15

16

17

18

19

20

21

22

23

24

25

26

Ca-4PLAINT -19-
]I

FELDMAN" WALDMAN & KLINE


A Professional corporation
2 PATRICIA S. MAR
L.J. CHRIS ~~TINrAK
3 AlAN J. ZACHARIN
2700 Russ Building
4 235 Montgomery street
San Francisco, CA 941~4
5 Telephone: (415) 981-1300

6 Attorneys for Trustee


Frederick s. Wyle
7

8 UNITED STATES BANKRUPTCY COURT

9 NORTHERN DISTRICT OF CALIFORNIA

10

II In re ) BANKRUPTCY NO. 91-31077 LK


)
/2 HAMILTON TAFT & COMPANY, ) Chapter 11
)
13 Debtor. )
------------------)
14 )
FREDERICK S. WYLE, Trustee in )
IS Bankruptcy of Hamilton Taft &
Company,
9~ '~----111---11------------
E OF MOTION AND MOTION
LK
16
Plaintiff, ) PRELIMINARY INJUNCTION
)
17
v. )
)
18 CONNIE C. ARMSTRONG, JR., et ala )
)
J9
Defendants. )
20 - - - - - " - - - - - - - - - - - - - - - )

21
TO ALL DEFENDANTS:

22
NOTICE IS HEREBY GIVEN that on _ _ _ _ _ _ _ _ , 1991 at

.m., or as soon thereafter as the matter can be heard,


23
24 in Courtroom 15427 of the above-entitled court, located at

25 450 Golden Gate Avenue, San Francisco! California, Trustee


'I
26 'Frederick s. Wyle (the UTrustee") will, and hereby does, move

-1-

for a preliminary injunction, restraining each of you from

2 encumbering, transferring or disposing of any assets, without

3 further order of this Court.

This Motion is based upon the grounds that each of you

5 has acquired property from the Debtor herein through fraudulent

o conveyances, without adequate consideration; that the Trustee has


7 reason to believe you will encumber, transfer or dispose of those

B assets and ~hat the Trustee, acting on behalf of the creditors of


9 the estate of the Debtor herein, will suffer irreparable injury if

10 the injunction is not issued.

11 This Motion is based on this notice, on the accompanying

12 Memorandum of Points and Authorities, on the declarations filed

13 with this motion or already on file in the Chapter 11 proceeding

(including the declarations filed in connection with the Motion to


14
Appoint a Trustee), and on such further evidence as may be
15
presented in connection with this Motion.
16

\7

Dated:
18

19
FELDMAN, WALDMAN & KLINE
A Professional corporation
20

21
By
Martiniak
22 Atto eys for Trustee
Frederick s. Wyle
23

2.4

25

26

-2-
FELDMAN, WALDMAN & KLINE

A Professional Corporation
2 PATRICIA S. MAR
F I LED
L.J. CHRIS MARTINIAK
) ALAN J. ZACHARIN [~?R 2 199\
2700 Russ Building
A 235 Montgomery street
San Francisco, CA 94104
5 Telephone: (415) 981-1300

6 Attorneys for Trustee


Frederick s. Wyle
7

B UNITED STATES BANKRUPTCY COURT

9 NORTHERN DISTRICT OF CALIFORNIA

10

II In re ) BANKRUPTCY NO. 91-31017 LK


)
12 KAMILTON TAFT & COMPANY, ) Chapter 11
)
13
Debtor. )
---~-----------~--)
)
14

91
FREDERICK S. WYLE, Trustee in
15 ,Bankruptcy of Hamilton Taft &
,Company,
)
16
Plaintiff, ) EX PARTE APPLICATION FOR A
17
} TEMPORARY RESTRAINING ORDER
'v. ) AND/OR AN ORDER SHORTENING
) TIME ON MOTION FOR A
18 CONNIE C. ARMSTRONG, JR., et ala ) PRELIMINARY INJUNCTION
)
19
Defendants. )
20 ------------------)
21
On March 26, 1991, Frederick S. Wyle (the "Trustee") was
23 :iappointed as a Trustee for Hamil ton Taft & Company (the "Debtor").
I
24 ,Since then, the Trustee has begun his investigation of the
il
25 :~Debtor's affairs. As a result of his preliminary investigation,
26 'ithe Trustee has filed a Complaint (the "Complaint") against
,j
~~., .., , - '

-1-
• •
various entities and individuals (the "Defendants H ) , all of whc~

2 are owned or controlled by Connie C. Armstrong, Jr., the

3 controlling shareholder of the Debtor. By the Complaint, the


J Trustee seeks to recover assets that were transferred from the

5 Debtor to Armstrong and his entities fraudulently, without

6 adequate consideration. By the Complaint, the Trustee also seeks


7 an injunction restraining the Defendants from encumbering,

8 transferring or disposing of those assets. In connection with the

9 Complaint, the Trustee also has filed a Motion for a Preliminary

10 Injunction (the #Motion U ) .

11 Pending a hearing on the motion for preliminary

12 injunction, the Trustee requests that this court issue a Temporary

}J Restraining Order restraining the Defendants from encumbering,


14 transferring or disposing of_any assets except to meet ordinary

15 day-to-day operating expenses. In addition, or in the


16 alternative, the Trustee respectfully requests that this court

}7 shorten the time in which the Motion can be heard.

This Application is based on the Motion, on the


1B
d
}9 Memorandum of Points and Authorities in Support of the Motion, on
'i
20 'the declarations in support of the Motion, on the papers on file
in the Chapter 11 proceeding herein {including but not limited to
21

22 :;
the declarations filed in connection with the Motion to Appoint a

23 :1,I

;'/ / I
24 ;1
25 i/ / I
II
'I
26 ',I I I
!
-2-
• .'
Trustee), and on such further evidence as may be presented in

2 support of this Application.

Ii Dated:

5 FELDMAN, WALDMAN & KLINE


A Professional Corporation
6

10

11

12

13

1.11

15

16
i

17
,I
'I
18

19

20

2\

22

23 I
I

24
~\
25 :1
26
I
I
-3-
FELD~~,

WALDMAN & KLINE

A Professional Corporation
2 PATRICIA S. MAR
L.J. CHRIS MARTINIAK
J ALAN J. ZACHARIN
2700 Russ Building
~ 235 Montgo~ery Street
San Francisco, CA 94104
5 Telephone: (415} 981-1300

6 Attorneys for Trustee


Frederick S. Wyle
7

8 UNITED STATES BANKRUPTCY COURT

9 NORTHERN DISTRICT OF CALIFO~~IA

10

11
In re ) BANKRUPTCY NO. 91-31077 LK
)
12 HAMILTON TAFT & COMPANY, ) Chapter 11
)
Debtor. )
13
--~------~---------)
)
IA
FREDERICK S. WYLE, Trustee in ) Adversary Proceeding
15 Bankruptcy of Hamilton Taft & ) No.
Company, )
)
16
Plaintiff, ) TEMPORARY RESTRAINING ORDER
) AND/OR ORDER SHORTENI~[G TIME
17
v. )
)
18 CONNIE C. ARMSTRONG, JR., et al. )
)
19
Defendants. )
20 ------------------)
WHEREAS, the Trustee has filed a Complaint agains: the
21
22 Defendants to recover assets allegedly belonging to the Debtor's

23 estate and to enjoin Defendants from encumbering, transferring or

disposing of those assets:


24
WHEREAS, the Trustee has filed a Motion for Preliminary
25
26 Injunction (the "Motion") and supporting papers to obtain an

-1-

injunction restraining Defendants from encumbering, transEerr:~;

2 or disposing of those assets;

3 WHEREAS, the Trustee has filed an Application fo~ a :?J

d and/or an Order Shortening Time on Motion for a Preliminary

5 Injunction (the HEx Parte Application") i

6
'WHEREAS, the Court has reviewed the Ex Parte

7 Application, the Motion, the papers supporting the Ex Parte

8 Application and the Motion and the other papers already on file in

9 the Chapter 11 proceeding; and

10
WHEREAS, granting the Application is necessary to

11
prevent irreparable injury that may be caused to the creditors of

12 the Debtor's estate, in that the Defendants may make it impossible

13 for the Debtor's estate to recover assets from Defendants which

the Debtor's estate is lawfully entitled to recoverj


14

IT IS HEREBY ORDERED that:


15
1. The Ex Parte Application shall be, and hereby is,
16

17 granted.

2• Pending the hearing and determination of the Motion


18
for Preliminary Injunction, Defendants, and each of them, and all
19
'their agents, employees and persons acting in concert with them l
20
shall be, and hereby are, restrained and enjoined from
21
22 encumbering, transferring or disposing of any assets owned,

controlled or held in the possession of the Defendants, without


23
order of this court, except to meet day-to-day ordinary operating
24 ,I
25 expenses •
:1
!
26

-2-
• •
3. The hearing on the Motion shall be held at

2 . m. on _ _ _ _ _ _ _ _ _ _ , 1991 .

J 4. Defendants shall be served with the Complaint, t~e

j Summons thereon, the Application, the Motion, any papers

5 supporting the Application and the Motion, and this Order by no

later than
6
---------, 1991.

7 5. All papers in opposition to the Motion shall be

8 filed with this Court, and served so that they reach counsel for

9 the Trustee, by no later than _ _ _ _ _ _ _ _ _ , 1991.

10

II Dated:

12
FELDMAN, WALDMAN & KLINE
A Professional Corporation
13

)4
BYCT2~~
L.J. :Chris Martiniak
15
Attorneys for Trustee
Frederick s. Wyle
16

\7

18

19

20

21

22

23

24

25

26

-3-

FELDMAN, WALDMAN & KLINE
.'
A Professional Corporation
':';~H I. 199J
2 PATRICIA S. MAR
L.J. CHRIS MARTINIAK
3 ALAN J. ZACHARIN
2700 Russ Building
J 235 Montgomery street
San Francisco, CA 94104
5 Telephone: (415) 981-1JOO

6 Attorneys for Trustee


Frederick s. Wyle
7

B UNITED STATES BANKRUPTCY COURT

9 NORTHERN DISTRICT OF CALIFORNIA

10

11 In re ) BANKRUPTCY NO. 91-31077 LK


)
12 HAMILTON TAFT & COMPANY, ) Chapter 11
)
13
Debtor. )
---~---~----------)}
14
FREDERICK S. WYLE, Trustee in
91 ) ) Adversary Proceeding

:30RAND~FS1-slK
15 Bankruptcy of Hamilton Taft
Company, )
)
16
Plaintiff, ) AND AUTHORITIES IN
17
) SUPPORT OF APPLICATION FOR
v. ) TEMPORARY RESTRAINING ORDER
)
18
CONNIE C. ARMSTRONG, JR., et al. )
)
19
Defendants. )
20 ------------------)
21

22

23

24

25

26
..... -
MEMO OF P & A IN SUPPORT
OF TEMP RESTRAINING ORDER
TABLE OF CONTENTS

] SECTION ?~G~

TABLE OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . .. . i i

5 INTRODUCTION 1

6 FACTS IN SUPPORT OF INJUNCTIVE RELIEF J

7 Transfers to Affiliates 4

8 Financial condition of Debtor 7

9 Consideration for Transfers and Risk of Dissipation 8

10 I. A TEMPORARY RESTRAINING ORDER IS APPROPRIATE


UNDER THE CIRCUMSTANCES OF THIS CASE 9
11
II. THE TRUSTEE AND CREDITORS STAND TO SUFFER
IRREPARABLE INJURY IF THE TRO DOES NOT ISSUE 11
12
III. AS THE AFFILIATES OBTAINED THE ASSETS THROUGH
13
FRAUDULENT CONVEYNiCES, A CONSTRUCTIVE TRUST
SHOULD BE ESTABLISHED 1]
14
IV. THE INJUNCTIVE RELIEF APPLIES TO PARTIES
15
OUTSIDE THE TERRITORIAL JURISDICTION OF THIS
COURT 15
16

CON CLU S ION. • • • • • • • • • . • • • . • • • • • • • • • • • • • • • • • • • . • • • • • • • • • . . • . • . • • . 16


17

18

19

20

21

22

23

24

25

26

-i-

TABLE OF AUTHORITIES

3 CASES

Benda v. Craud Lodge of lAM,


584 F.2d J08 (9th Cir. 1978) 10
5
Big Shanty Land Corporation v.
6 Corner Properties, Inc.,
61 B. R. 272 (N.D. Ga. 1985) . • • . . . . • . • . . • • . • • • . • • • • • . . • . . . . 1 J
7
!

Calistoga Civic Club v. Calistoga,


8 143 Cal. App. 3d 111 (198]) . . . . . . . . . . . . . . . . . . . . . • • . . . . 14, 15

9 In Re Cumberland Investment Corporation,


lIS B.R. 3 (Bkrtcy. D.R.r. 1990) 12
10
Haskel Engineering and Supply Co. v. Hartford
11
Accident & Indemnity Ca.,
78 Cal. App. 3d 371 (1978) 14
12
Heckmann v. Ahmanson,
\3
168 Cal. App. 3d 119 (1985) 15

14
IML Seatransit Ltd. v. United states,
323 F. SUppa 562 (N.D. Cal. 1971) 9
15
Inglis and Son Baking Co. v. ITT Continental
16
Banking Co.
526 F.2d 86 (9th Cir. 1975) 10
17
Los Angeles Memorial Coliseum eom/n. v.
National Football League,
18
634 F.2d 1197 (9th Cir. 1980) 0 ••• 10
19
Sturm/O'Connell v. Continental Bank,
19 B.R. 965 (1982). 0 •••••• 0 ••••••••••••••••••••••••••••••• 12
20
Waffenschmidt v. Mackay,
21
763 F.2d 711 (5th eire 1985) 16
22

23

24

25

26

-ii-
-------- _.... --_._----_.---

STATUTES

2 Bankruptcy Rules

3 Rule 7065 •• 00' •••••••• 0 0 •• 00 ••••••• 0 •••• 0 ••• 0. o. 0 o. O' 0 •• • .'';'

California civil Codes

5 § 2224 iII 14

6
§ 2223 •. 0 o. o' 0 •• 0 •• 0 ••••••••••• 0 ••• 0 ••••••••••••••••••••• 14

7 Federal Practice and Procedure

§ 2951.0 ••••• 0 ••••••••••••••••••••• 0 •• 0000. 0 •••••• 0 •• 0 •••• 9


8
§ 65 •••••.• 0 •• 0 ••••• 0 0• 0 • 0 •• 0 •••••• 0 0 ••••••••••••••••••••• 9
9
§ 65(b) . . . . 0 ••••••••••••• 0 •••• 0 •••• 0. 0.0 ••• 0 ••• 0 •••••• 0 ••• 9
10

II

12

13

14

\5

16

17

18

19

20

21

22

23

24

25 ,;

26

-iii-
• •
INTRODUCTION

2 An involuntary bankruptcy proceeding was filed agains~

3 Hamilton Taft & co., Inc. (the HDebtor H) on March 20, 1991. en

4 March 26, 1991, the court appointed Frederick S. Wyle as trustee.

5 Although the Trustee has been in office only one week, his and his

6 accountant's early investigation has substantiated that there have

7 been massive conveyances of assets from Debtor directly or

8 indirectly to companies affiliated with Debtor. By this

9 application, the Trustee seeks a temporary restraining order

10 preventing the affiliated entities, the defendants herein, from

II encumbering, transferring, or disposing of any assets or any

proceeds of those assets, pending determination of the Trustee's


J2
adversary proceeding seeking recovery of the assets as fraudulent
'3
conveyances.
14

The basis for issuance of a temporary restraining order


15
and preliminary injunctive relief is clear. During the two-year
16

17
period that Connie Chip Armstrong Jr. (" Armstrong") has owned and

controlled Debtor, extremely large sums of money collected from


18
Debtor's clients for purposes of paying the clients' payroll taxes
19
have instead been diverted to other companies owned and controlled
20
by Armstrong (HArmstrong Companies"). Debtor's records examined
21
thus far show that at least $61,000,000 has been transferred
22 'i

during that period. )Debtor's records show that there are over
23 !.--~

$84,000/000 in unpaid and overdue tax obligations that Debtor was


24
obligated to pay on behalf of its Clients~) The Trustee has only
25 1
I/lU I':/ :i'~'N';'jrl"~:-/ ,'~{jJ<l- P/'/"U
'jj'.. <~/,'1/ I~·:,~.';
26 I

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -1-
• •
been able to locate about $5,000,000 in known liquid assets of

2 Debtor.

3 In return for the above described transfers, Debtor

4 received either nothing at all, or else unsecured "notes n or

5 "bonds" from the recipient companies. Trustee can find no

6 instruments evidencing these "notes" and "bonds" much less

7 collateral. The Armstrong Companies that received these

8 transfers, cannot meet their own operating expenses without cash

9 "loans" from Debtor, are engaged in risky and speculative

10 businesses, and have not even paid the interest due on the "notes"

II and "bondsl/.

r2 Nevertheless, Armstrong and his affiliate companies have

13
been spending money extravagantly, purchasing a multimillion

14
dollar "hobby" ranch for Armstrong's residence, installing a
,~

15
multimillion dollar showhorse practice arena at the ranch, leasing

a palatial suite at the Mark Hopkins in San Francisco for a


16

17
reported $130,000, and maintaining a limousine and full time

chauffeur in San Francisco for a few day's use per month.


18
The legal requirements for issuing injunctive relief are
19
well satisfied on these facts. The likelihood of success by the
20
Trustee on the merits of the claims set forth in the complaint is
21
compellingly high. Virtually every ground for finding a fraudu-
22
lent conveyance exists here. The Debtor has not been able to meet
23
its payment obligations when due for virtually the entire period
2.4
Armstrong has controlled Debtor. Conveyances have been made
25

26

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -2-
without receiving reasonably equivalent value. And each trans:e~

2 left Debtor more insolvent and undercapitalized.

3 The risk that the assets will be dissipated is also

J compellingly high. At least $80,000,000 has been transferred to

5 entities under the control of the very person who engineered the

6 transfers, who has spent money lavishly, and who has refused to

7 provide any information to the Trustee about the transfers and

8 disposition of the Debtor's assets by the Armstrong Companies.

9 Armstrong knew that the transfers would render the

10 Debtor insolvent and wou~d prevent Debtor from meeting its

11 contractual obligations. Such knowledge is imputed to the

12 recipients, who were owned and controlled by Armstrong. He and

13 they also should have known that the consideration, if' any, given

14
in exchange for the transfers were not reasonably equivalent in

15
value.

16
Certainly the balance of potential harm tips strongly in

17
favor of granting the requested relief and protecting the estate

18
from further dissipation of the transferred assets. The requested

19
injunctive relief should be issued forthwith.

20
FACTS IN SUPPORT OF INJUNCTIVE RELIEF

21
The facts on which this application is based are set
forth in the declarations of the Trustee, Frederick S. wyle
22
("Wyle n ), the Trustee's accountant, Lee Baly ("Baly") and
23
investigator Fred Daulton ("Daulton") filed with this application
24
for injunctive relief, as well as the declarations of Debtor's
25 i

former treasurer James Paille ("Paille") and Debtor's former


26

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -]-

controller Steven Saladoff (flSolodoff") filed in connection witj

2 the motion of Federal Express Corporation for appointment of a


3 trustee. References are to the specified paragraphs of their
J respective declarations.
5 Transfers to Affiliates

6 1. since March 1989, Armstrong has been the sale owner

7 and in control of Debtor. Armstrong also owns and controls a


8 number of related companies including the following: The
9 Remington Companies, Inc.; Winthrop Realty Company; CCA Holdings,
10 Inc.: CCAJ Corporation; Chase Development Corp.; Chayson Mortgage

11 and Investment Company; Cal-Pacific Management Corp.; C.R.

12 Acquisitions: Dei, Inc.: Dresdner "Financial Management

13 Corporation: Dresdner Enterprises, Inc.; Dresdner Petroleum, Inc.;

].:1 H.T. International, Inc.; suisse Texas, Inc.; Knightsbridge

J5
Companies, Inc.: and Knightsbridge Guaranty Company. (Wyle, ~ ];

16
Daulton, ~ 10.)

17 2. Debtor's books and records show that during

18
Armstrong's control of Debtor, there have been numerous transfers

19
from Debtor to Armstrong companies (directly or through investment

20
accounts at Merrill Lynch and/or accounts at Bank One in Dallas)

21
primarily to Armstrong's umbrella companies, Knights Bridge Inc.

22 and Remington. At least $61,000,000 has been so transferred


during Armstrong's control of Debtor, as reflected in the increase
23

24
of intercompany receivables from approximately $18.9 million
shortly after Armstrong acquired Debtor to $68.8 million as of the
25
end of 1990, plus transfers totalling $11,000,000 in January and
26
-':--""~

MEMO OF P & A IN SUPPOR~


OF TEMP RESTRAINING ORDER -4-

February of 1991. There are currently over $80,000,000 in

2 receivables from the Armstrong companies shown on Debtor's bocks

3 and records. (Wyle, ~ 7; 8alYI ~~ 4-6 and 12; Solodoff, ~ 17.)

3• On September 12, 1990 Debtor's books and records

5 reflect a transfer of $3,300,000 to Remington with the annotation

6 that this was "at Chip Armstrong/s request". (Ba ly, ~ 9.)

7 4. According to the former cash manager of Armstrong's

8 various companies, Patti Montague, upon obtaining control of

9 Debtor, Armstrong immediately wired about $2,000,000 to the

10 holding company for some of the Armstrong companies. (Daulton,

II ~ 9.)

12
5. According to Debtor's former treasurer, James R.

13
Paille, in JUly, 1989, Armstrong transferred approximately $3

14
million of funds belonging to the Debtor to Dresdner Enterprises,

Inc., a company which formerly owned the Debtor and is currently


15
owned by Armstrong. (Paille, ~ 8).
16

6. According to Paille, in July 1989, Armstrong


17
ordered $9,000,000 transferred from Debtor to Morgan Guaranty Bank
18
to the account of Dresdner Enterprises, Inc. (Paille, ~ 9).
19
7. According to Paille, in August, 1989, Armstrong
20
transferred $7 million of the Debtor's money to an account of
21
Dresdner Enterprises, Inc. in order to purchase a shopping center
22
that Armstrong or one of the Armstrong Companies was buying.
23
(Paille, If 11).
24
8. According to Montague, in February 1990, Armstrong
25 'I
j
transferred approximately $10 million of the Debtor's funds to
26

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -5-
• •
winthrop for purchase of a showpiece ranch of over 2,000 acres :~~

2 Armstrong's personal residence. A loan in the amount of

J approximately $6.4 million was booked to Armstrong, who gave a

J deed of trust on the property to Winthrop. According to Montague/

5 Winthrop in turn assigned the deed of trust to the Debtor.

6 Portions of the $10 million from the Debtor were also used for

7 improvements on Armstrong's ranch, including about $2.4 million

B spent on a cutting horse arena, and for prepaid interest on

9 Armstrong's note. (Daulton, ~ 16).

10 9. According to Montague, Armstrong transferred some

11 $3 million of the Debtor's funds into Dresdner Petroleum to

12 purchase oil and gas leases in the name of Dresdner Petroleum.

13 (Daulton, , 15) ..

14
10. According to Montague, after Armstrong acquired the

15
Debtor, the Debtor became the primary source of funding for all of

16
Armstrong's Dallas operations. The Armstrong Companies required

17
some $400,000 a month in operating costs--almost $5 million a

year--apart from any operating costs incurred by the Debtor


18

19
itself. The funds for such operating costs were obtained from the

Debtor. (Daul ton, ~ 10).


20
11. According to Montague, she prepared a weekly cash
21
summary projecting the Armstrong Companies, cash needs for the
22
next several months. If the cash flow showed that the entities
23
would soon run out of funds, Armstrong would transfer the Debtor's
24
funds to the Dallas office. These funds were then distributed to
25
" whichever Affiliated Company needed them. (Daulton, , 11).
26

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -6-

Financial Condition of Debtor

2 12. Throughout the time Armstrong controlled Debtor :~

J has been rendered unable to pay client tax obligations when due as

4 a result of transfers to Armstrong Companies. As of the end of

5 1990 there were over $84,000,000 in overdue tax obligations which

6 Debtor was supposed to pay on behalf of its clients, and for which

7 Debtor received funds from its clients to effectuate ?ayment, but

8 which have remained unpaid. Substantial penalties and interest

9 have accrued on these unpaid tax obligations. (Baly, ~ 15: Wyle,

10 ~ 4: Solodoff, ~ 20).

II 13. Debtor now has only about $5,000,000 in liquid

12 assets that Trustee has been able to find and recover. This

,3 account may include money on deposit with Debtor for tax payments.

(Wyle, ~ 2).
14

15
14. Debtorls internally prepared budget for 1991 shows

16
projected gross revenues to be about $9/000,000 to meet projected

17
operating and payroll expenses of $8,705,375 for 1991 from"the

18
following sources:

19
(a) About $4,130,000 in net fees and overnight deposit

earnings on legitimate business operations, and


20
(b) About $5,130,000 in interest expected to be paid by
21
affiliated entities on $57,000,000 in intercompany bond
22
receivables ..
23
The budget does not show any interest income projected on the
24
$11,800,000 intercompany note receivable shown on Debtor's books
25

26
and records. ( Ba 1 y, ~ 16 • )

v~._"""'_"", ....

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -7-
• •
Consideration for Transfers and Risk of Dissipation

2 15. On Debtor's records, the intercompany receivables

3 are recorded as either "short term receivables", "long terw notes/l

4 or "long term bonds". However, the Trustee has not found any:

5 (a) notes, bonds, or other instruments evidencing the interconpany

6 obligations, (b) collateral or security agreements securing such

7 obligations, (c) evidence of repayment of any portion of long te~m

8 obligations, (d) evidence of payment of interest on such

9 obI igations. (Wyle I ~ 9).

10 16. The primary business of the Armstrong Companies

11 appears to be somewhat risky and speculative in that it involves

,2 the acquisition of failing companies with the hope of turning them

13
around. (Wyle, ~ 10).

14
17. Armstrong Companies which have received funds of

Debtor have been unable to generate sufficient revenue to pay


15
their own operating expenses and Debtsr's funds have been used to
16

17
meet such expenses. (Daulton, ~ 10).

18. According to Montague, after February 1990, the


1 a
wire transfers from Debtor to Armstrong Companies increased, and
19

Armstrong's personal living style became more extravagant.


20
Armstrong or his companies purchased:
21
(a) a large suite of luxury rooms at the Mark
22
Hopkins Hotel in San Francisco, at a cost of over $130,000;
23
(b) a red Jaguar for $105,000 at the 1990 nCattle
24
Baron's Ball;"
25

26

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -8-

(c) a Rolls Royce for $135,000 at another chari-t.':'

2 event.

3 (d) a BMW for $36,000 (paid for by Debtor) for a

J Hamilton Taft vice president, Christine Grambling.

5 None of Armstrong's companies·, other than Debtor, had sUfficient

6 revenues or funds available to fund these expenses. (Daulton/

7 f! 17.)

B 19. Armstrong has, through his attorneys, refused to

9 tell the trustee whether and where the notes and bonds can be

\0 found, what assets are ovlned by the Armstrong Companies to support

11 the notes and bonds, why interest is nat being paid, or any other

12
information regarding transfers of the Debtors assets and disp05i-

tion of the transferred funds. (Wyle, ~ 8).


13

!4
DISCUSSION
15
I. A TEMPORARY RESTRAINING ORDER IS APPROPRIATE
16
UNDER THE CIRCUMSTANCES OF THIS CASE

Bankruptcy Rule 7065 provides that Federal Rule of Civil


17
Procedure Rule 65 applies in adversary proceedings. FRCP 65(b)
18
sets forth the circumstances under which a temporary restraining
19
order may be granted. The tests for issuance of such an order are
20

21
aKin to those required to prevail on a motion for preliminary
injunction. 11 Wright & Miller, Federal Practice and Procedure
22
§ 2951 (1973 and 1986 Supp.); ~, IML Seatransit Ltd. v. united
23
states, 323 F. SUPPA 562/ 564 (N.D. Cal. 1971). As held by the
24
Ninth Circuit:
25

26
---'''-'-'''''''~

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -9-

In this circuit the moving party may meet
its burden by demonstrating either 1) a
2 combination of probable success on the merits
and the possibility of irreparable injury or
3 2) that serious questions are raised and the
balance of hardships tips sharply in its
favor. Inglis rand Son Baking Co. v. ITT
continental Banking CO.] 526 F.2d (86] at 88
5 [9th Cir. 1975]. These are not separate
tests, but the outer reaches "of a single
6 continuum" Benda [v. Craud Lodge of IAM,
584 F.2d 308 (9th Cir. 1978)] at 315. Los
7 Angeles Memorial Coliseum Com'n. v. National
Football League, 634 F.2d 1197, l02~ (9th Cir.
B
1980) .

9
The foregoing facts support the following conclusions

10
which warrant issuance of injunctive relief:

11
1. Debtor is, and for months has been, insolvent in

that Debtor cannot, and for months has been unable to, pay when
12
due the tax obligations for which it collected money from clients
13
and Debtor's liabilities exceed its assets.
14
2• Many or most of the transfers constitute conversion
15
or misappropriation of the assets of, the Debtor by Armstrong, or
16
commingling of Debtor's funds with those of Armstrong Companies,
17
and therefore assets of the Debtor are being wrongfully held by
18
such transferees.

3. Even if some of the transfers were in exchange for


20
an oral (or even an as yet unfound written) promise to repay, the
21
transfers are not for reasonably equivalent value, since the fair
22
market value of such long term, undocumented, and unsecured
23
obligations from privately held, financially shaky companies under
24
the control of a spendthrift (Armstrong), would be a small
25
fraction of their principal value of $68.8 million, and clearly
26

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -10-

not reasonably equivalent in value to the transfers. Thus, the

2 transfers to Armstrong Companies were fraudulent conveyances.

J 4. All transfers were made to such Armstrong Compan:es


4 with their knowledge, imputed through Armstrong, that

5 (a) the money transferred was provided to Debtor

6 by Debtor's clients for tax payments,

7 (b) such transfers would interfere with and

8 prevent Debtor from performing its contractual obligations,

9 (c) such transfers would prevent Debtor from

10 paying its obligations as they came due, and

1\ (d) Debtor was insolvent at the time the transfers


were made.
12
5. There is a sUbstantial risk of dissipation of the
\3

, l1
assets of the Debtor that have been fraudulently conveyed to the

Armstrong companies controlled by Armstrong.


15
6. Armstrong breached his fiduciary duties to Debtor
16
by causing the transfers in that he failed to prudently invest and
17
, protect the funds under his custody and control, he put himself in
18
a conflict of interest, he engaged in self dealing, and he
19 I

misappropriated the funds.


20
II. THE TRUSTEE AND CREDITORS STAND TO SUFFER IRREPARABLE
21
INJURY IF THE TRO DOES NOT ISSUE
22
Debtorls own records establish that tens of millions of
23 J

dollars of the Debtor were fraudulently conveyed to Armstrong


24 j

Companies owned and controlled by Armstrong, the controlling


25 .1
I
26

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -11-

shareholder of the Debtor and the person primarily responsible
2 its current status.

J By issuing a temporary restraining order, this court


J will preserve the status quo, allow the Trustee to conduct his
5 examination, and allow the court time to resolve the Debtor's

6 rights to assets in the possession of the Armstrong Companies

7 without fear that the Armstrong Companies will dissipate the

8 wrongfully held assets, either intentionally or by gross

9
mismanagement. Should the TRO not issue there is no way of

10 preserving those assets which have been transferred from the

Debtor to the Armstrong Companies. Arms~rong, who either owns or


11

/2
controls those companies, will be free to transfer the assets or

\3
further dissipate the assets either by continuing his fraudulent

practices or by simple gross mismanagement.


14
The present case is similar to the factual situation of
15

16
sturm/O'Connell v. Continental Bank, 19 B.R. 965 (1982). In

17
Sturm, the trustee of an estate asked the Bankruptcy court to

enter a preliminary injunction to prohibit the transfers of funds


J8

from a banking account held by a third party corporation alleging


19
that although the account was in the name of another entity, the
20
money in the account was, in fact, that of the debtor. The Court
21
issued a preliminary injunction preventing any transfers pending
22
the completion of the trustee's investigation and disposition of
23
the trusteels complaint in view of the serious allegations raised
24
by the trustee concerning the conduct of the debtor. See, also,
25
In Re Cumberland Investment Corporation, 118 B.R. 3 (Bkrtcy.
26
'-'-"-"-'-"~

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -12-
D.R. I.

1990) (the debtor was restrained from selling coins, eXC2~:'

2 with prior court approval, pending the results of the exarnine~/s

3 investigation); Big Shanty Land Corporation v. Comer Prooerties L

4 Inc., 61 B.R. 272 (N. D. Ga. 1985) (th.e Court enjoined a Chapter 11

5 debtor and transferee from transferring debtorls sale asset, a

6 tract of valuable undeveloped land).

7 The intercompany diversion of funds and gross

8 mismanagement of same has been specifically set forth in the

9
accompanying declarations and shall not be repeated here. Suffice

10
it to say that the overwhelming evidence compels the conclusion

\ \
that the assets nominally held by the Armstrong Companies,

companies either owned or operated by Armstrong are, in legal


12
effect, assets of the Debtor that are sUbject to the protection
13
and jurisdiction of this court. The preliminary injunction
14
pending investigation and determination of the Trustee's complaint
15
would serve only to protect the creditors of the estate.
16
III. AS THE AFFILIATES OBTAINED THE ASSETS THROUGH FRAUDULENT
17
CONVEYANCES, A CONSTRUCTIVE TRUST SHOULD BE ESTABLISHED.
1B
Because the acquisition of the assets held by the
19
Armstrong Companies was through fraudulent conveyances, i.e.,
20
obtained through wrongful means, a constructive trust should be
21
established to hold those funds for the benefit of the Debtor. A
22
constructive trust is a remedy used by a court of equity to compel
23
a person who has property to which he is not justly entitled to
24

25

26
"""-"~"-'~

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -13-
• •
transfer it to the person entitled thereto. 1 The trust is

2 passive, the only duty being to convey the property. Haskel

3 Engineering and Suoply Co. v. Hartford Accident & Indemnity Co.,

d 78 Cal. App. 3d 371, 375 (1978); Calistoga civic Club v.

5 Calistoga, 143 Cal. App. 3d 111, 117 (1983).

6 The principle of constructive trust situations are

7 covered by two general Code sections. civil Code § 2223 provides:

8 "One who wrongfully detains a thing is an involuntary trustee

9 thereof, for the benefit of the owner." Civil Code § 2224

10 provides: "One who gains a thing by fraud, accident, mistake,

II undue influence, the violation of a trust, or other wrongful act,

12
is, unless he or she has some other and better right thereto, an

1J
involuntary trustee of the thing gained, for the benefit of the

person who would otherwise have had it. n The wrongful act giving
\4

15
1 The trustee of a bankruptcy estate has broad powers under the
16
Bankruptcy Code to "avoid" certain transfers of property made
17 by the debtor either after or shortly before the filing of the
bankruptcy petition. The property may be returned to the
18 estate for the benefit of all persons who have valid claims
against the debtor. In this case, all assets transferred from
19 the Debtor to the Armstrong companies should also be avoided
under section 548.
20
Sections 548(a) (2) allows the trustee to avoid a transfer if
21 the debtor "received les5 than a reasonably equivalent value in
exchange for such transfer or obligation." section 548(a) (1)
22 permits the trustee to avoid any transfer made with "actual
intent to hinder, delay or defraud any entity to which the
23 debtor was or became ... indebted." section 550 authorizes the
trustee to recover the transferred property from the initial or
24 subsequent transferee.

25 Any transfers of funds made by the Debtor to the Armstrong


.1
I Companies within the last year are avoidable as fraudulent
26 conveyances.
"---,,._-,--,

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -14-
-;
• •
rise to a constructive trust need not amount to fraud or

2 intentional misrepresentation. All that must be shown is that t~~

3 acquisition of the property was wrongful and that the keeping of

4 the property by the defendant would constitute unjust enrichment.

5 The remedy in constructive trust cases is to convey to the person

6 entitled the property held in constructive trust or to grant such

7 person an equitable lien. Calistoga at 117. The action is not

8 dependent on the absence of adequate legal remedy. Heckmann v.

9 Ahmanson, 168 Cal. App. 3d 119 (1985).

10 In the present case, the evidence clearly shows that the

11 assets of the Armstrong Companies are, in fact, those of the

12
Debtor obtained through various and numerous fraudulent

13
conveyances for which no adequate consideration was received.

14
As such, a constructive trust should be imposed on these assets

in favor of the Debtor. Pending final judgment imposing a


15
constructive trust, injunctive relief should be granted preserving
16
the status quo of the assets. To fail to do so could irreparably
17
injure the estate's interests.
18
IV. THE INJUNCTIVE RELIEF APPLIES TO PARTIES OUTSIDE
19
THE TERRITORIAL JURISDICTION OF THIS COURT'
20
The Trustee seeks to enjoin the transfer or disposition
2\
of the assets of the Defendants even though arguably some of the
22
Defendants are not located within California. It is well settled
23
that a district court order has nationwide application and that
24
parties or non-parties who reside outside the territorial
25
jurisdiction of a district court are sUbject to that court's
26
.. ,-"-'~

MEMO OF P & A IN SUPPORT


OF TEMP RESTRAINING ORDER -15-

jurisdiction if, with actual notice of the court's order, they

2 actively aid and abet a violation of the order. Waffenschmidt ~.

3 Mackay, 763 F.2d 711, 714 (5th Cir. 1985). This is so despite

J absence of other contacts with the forum. In this case, the

5 Defendants are Armstrong and corporations controlled by Armstrons.

6 Armstrong has ample contact with the forum state through his

7 affiliation with the Debtor. The court should have no reluctance

8 to grant the TRO to restrain Armstrong and his entities from

9 transferring assets that belong to the bankruptcy estate.

10 CONCLUSION

11 In sum, the TRO should issue upon the strong evidence

12 that Defendants have acquired property from the Debtor herein

13 through fraudulent conveyances, without adequate consideration,

14 • and the Trustee, acting on behalf of the creditors of the estate

15 of the Debtor herein, would suffer irreparable injury if the


'I

16
injunction was not issued. A temporary restraining order should

17 therefore issue restraining Defendants from encumbering,

18
transferring or disposing of assets in their possession pending a

19 I: hearing on a preliminary injunction and the court's consideration


I

20
of the claims of the Trustee.

21
Dated: FELDMAN, WALDMAN & KLINE
22 A Professional corporation

BY~~
23
24
L. J • /Chris Martiniak
Attoroeys for Trustee
25 I Frederick s. Wyle
:\
26

MEMO OF P & A IN SUPPORT


i OF TEMP RESTRAINING ORDER -16-

FELDMAN, WALDMAN & KLINE
A Professional corporation
2 PATRICIA S. MAR
L.J. CHRIS MARTINIAK
3 2700 Russ Building
235 Montgomery Street
4 San Francisco, CA 94104
Telephone: (415) 9Bl-1300 2 1991
5
Attorneys for Trustee
6 Frederick S. Wyle

8 UNITED STATES BANKRUP'rCY COURT

9 NORTHERN DISTRICT OF CALIFORNIA

10

11 :'In re )
i: )
12 'HAMILTON TAFT & COMPANY I ) BANKRUPTCY NO. 91-31077 LK
)
)J Debtor. ) Chapter 11
-----------------------)
1& )
FREDERICK S. WYLE, Trustee in )
15 'Bankruptcy of Hamilton Taft & )
::Company,

) Adversary Proceeding
No.

v.
Plaintiff,
9~ )
DEC TION 0 LE . BALY
IN SUPPORT OF APPLICATION
18 ) FOR TEMPORARY RESTRAINING
II CONNIE C. ARMSTRONG I JR., et ala ) ORDER
19 ! )
Defendants. )
20 ------------------>
21 I, Lee S. Baly, decla~e:
'I

22 !! 1. I am a certified public accountant, licensed in rhe


~ 1t
23 q Sta te 0 f Cal i fornia I and an officer and director of the firm
.
,(

24 !/Hernming Horse, Inc., Certified public Accountants, the accountants


II
25 !i far Frederick S. Wyle, Trustee in Bankruptcy for Hamilton Taft &
il I received a Bachelor of Arts degree fron San
26 (ompan y ("HTC").

;1
;: hami l ton:dec-baly -1-
II

Francisco state University in 1965. In 1979, I received a Masters

2 in Business Administration from Golden Gate University and 1980

3 became a California licensed certified public accountant and a

4 member of the American Institute of Certified Public Accountants.

5 2. I have personal knowledge of the following facts

6 and, if called as a witness, could testify competently to them.


7 3. Upon engagt-'men~ by the Trustee, I immediately

8 "commenced an analysis of the accounting records of HTC in order to


I
9 gain an understanding as to how the financial transactions are

10 :'surnma.r.ized in HTC's financial reporting system. At the time of my


,"'I
11 : evaluation, HTC's 1991 general ledger was posted through the month
~~
J2 ::ending February 28,1991 and included a detail listinej- of
II
13 "transactions for the period January 1, 1991 through February 28,
:1
14 I: 1991. I have also interviewed members of the HTC accounting staff
I,
15 Ii to understand the HTC accounting -etflti- system.
\i
!!
16 ~I
!;
4• Listed in the above-mentioned general ledger is
lj
17 . account #0270-001, titled ~INTERCOMPANY REC.-OTHER," which I am
\I
18 :~advised includes amounts receivable from certain companies
II
19 I:affiliated with HTC ("affiliated companies") I meaning companies

20 I"!l'dentl'fl'ed t 0 y e
me as owne d an d/ or con t ro 11 e d b '
cnnle C.
\\
21 Armstrong, Jr. (NArmstrong n ). This general ledger account shuwed

22 :!a receivable balance of $2,677,223.84 a,s of January 1, 1991.

23 i: During January and February of 1991, this beginning balance was


IIII
24 :increased by wire transfers representing advances to affiliated

25 ilcompanies in the aggregate amount of $11,000,000.00 (described

26 !'herein in paragraphs 5 and 6) and was reduced by wire transfers to


I
Ij
!
II ham; L,on, dec-baL y -2-
!l
:j
II

\)
'i

HTC from affiliated companies in the aggregate amount of

2 $2,140,472.64 (described herein in paragraph 7). During these t~o


I'
,I

3 months, the net amount receivable from affiliated companies


4 increased by $8,B59,527.J6.

5. During January, 1991, HTC's general ledger account

6 #270-001 included a $7,000,000.00 advance to another affiliated


II
7 "company. ::: n order to see the speci f ic cash transaction, I traced
it
8 the journal entry referenced. Ac~ording to documentation from

9 Bank One in Dallas, Texas ("Bank One H ) , the referenced cash



Ij
10 ,transaction consisted of a January 24, 1991 wire transfer of
il
I.
11 "$7,000,000.00 from HTC's cash account #01000025246 with Bank One
I'
1I
12 :1 to an account titled nKnights Br idge Camp., Inc. Treasury Acct., 1/
Ii
Ii
13 ,an account which I am advised is held by Knightsbridge, an
II
14 "affiliated company_ This wire transfer was initiated by J.J_
:1
II • •
15 IK1ssee ("K~sseeN), who I am advised is not an employee of HTC, but

16 ,liS instead an employee of Remington Industries, an affiliated

17 ;'company. A true and correct copy of the Bank One document


1B IlrecOrding this wire transfer is attached hereto as Exhibit A.

19 < 6. During February, 1991, the HTC general ledger


!
20 "account #270-001 included a $4,000,000.00 advance to another
:1

21 affiliated company. In order to see the specific cash

22 II transaction, I traced the j ourna 1 entry referenced. According to


23 I I .
document
I' at ion from Bank One, the reference d cas h t ransact10n
.

24 II cons isted of a February 19. 1991 wire transfer of $4, 000,000.00


II
25 : from HTC's cash account #01000025246 with Bank One to another Bank
Ii
26 ,One account titled nKnights Bridge Camp., Inc. Treasury Acct."
I
;
I. hami l ton:dec-baly -)-

II

The bank document also indicates that Kissee initiated this wire

2 I transfer. True and correct copies of the Bank One documents


i
3 recording this wire transfer are collectively attached hereto as

4 Exhibit B.
5 7. During January and February, 1991, the outstanding
6 "balance receivable from other affiliated companies was reduced by

7 eighteen wire transfers to HTC amounting to $2,140,472.64. These

B 'wire transfers deposited funds to HTC's payroll and operating cash


L
9 accounts. These funds were required by HTC in order to issue
;;
I"
ID payroll checks and periodic payments to vendors and other payees.

It ::I have ascertained in my investigation that HTC's procedure was


,I
12 I'for the accounting staff to communicate the amount of funds
,\

'I
13 l\required for HTC payroll and operating expenses to Kissee, who
14 ,iwould then arrange the wire transfer to the appropr iate HTC
q

)5 ':account. For example, on February 11, 1991 a wire transfer in the


l!
16 ';amount of $80, 000. 00 was made from the Bank One account

17 ;1#0000100056241 titled nKnights Bridge Comp., Inc. Treasury Acct."


ii
II
18 :!to HTC's First Interstate Bank account number 661-5-20135, which

19 l!iS an HTC operating account. The bank document also indicates


,I
20 :that Kissee initiated this transfer. A true and correct copy of
11
21 I the Bank One document recording this wire transfer is attached
!~
22 :lhereto as Exhibit c.
23 II 8. I have been advised that HTC's accounting staff in
I!
24 i[san Francisco periodically receives documents from Kissee Which

25 II describe the deposits and disbursements in HTC's Bank One cash


26 ·'account. Documents 50 received for March, 1991 included two

il hami l ton:dec-baly -4-


11
,
• •
escrow checks dated March 19, 1991 in the amounts of $15 / 920.59

2 and $16,240.98 respectively and noted as "Sales Proceeds.~ These

3 checks note HTC as the seller of certain property and nUnited

4 Homecraft Corporation" as the buyer of this property. I have not

5 been able to identify the description of this property sold by HTC

6 with any assets included on HTC's general ledger. I have been

7 told by Ziba Aflak, HTC's accounting manager, that she is also not

8 familiar r,;ith this property.


9_
9 HTC's 1990 general ledger included an account

10 #1028-000, which is titled "I/C-Remington Companies, Inc."


Ii Remington Companies, Inc. ("Remington") is an affiliated company_

12 There were approximately 170 transactions posted to this general


f!
13 ledger account during 1990. Of the documentation supporting this

14 'general ledger account, to date I have identified an Advice of

15 Transfer recording a $3,300,000.00 transfer on September 12, 1990


16 :from HTC to Remington, which according to the document was

17 jrequested by Armstrong. The transactions posted to this general

18 -ledger account indicate that during 1990, HTC paid cash to and
I!
19 :! rece i ved cash from Remington on numerous oeca s ions. A true and
II,
20 correct copy of the Advice of Transfer is attached hereto as

21 Exhibit E.

10. For internal purposes, HTC/s accounting staff


23 ;: prepared a balance sheet descr ibing HTC I s financial position as of
;[
24 II February 28, 1991 ("Balance Sheet").
II The Balance Sheet included as a current asset a
25 11.
11 .
26 fine item titled "Aff. Notes Rec. (Note 4)" with a balance of

!I
!i ham! I ton:d.c-baly -5-
• •
$11 / 536 / 751.20. Note 4 describes this item as a short term

2 receivable due from Knightsbridge Companies, Inc., an affiliated

3 company. This balance corresponds to the February 28, 1991

4 balance in the general ledger account #0270-001 NIntercompany

5 :Rec.-other/~ mentioned in paragraph 4 above.

6 12. The Balance Sheet included as a long term

7 ,receivable a line item titled HAff. Notes Rec. (Note 4)" in the
:i
'I
B amount of $11 / 800,000.00 and a second item titled NAff. Bonds Ree.

9 :;(Note 4)" in the amount of $57,000 / 000.00. Note 4 describes these


\{
10 items as HWinthrop Nates Receiv~blen and JlAffiliated Bonds

11 'Receivable" respectively. I am informed and believe that


'j
II
12 .!"WinthropH is a reference to winthrop Realty, an affiliated
ii
I
13 I!compan y . Together with the receivable referred to in paragraph 11

14 ':above, these records show receivables of over $80,000,000.00 owing

15 ·;to HTC from affiliated companies.


I,
'(
\6 13. The Balance Sheet inclUded as a current liability a
i
17 :'line item titled RAff. NIP Current (Note 4)# in the amount of
Jl
18 j$6,044 / 04S.09. Note 4 describes this item as a short term balance

19 11 owed to Remington.

20 14. After diligently interviewing HTC employees and

21 . revic~ing HTC records, I have been unable to discover any notes,

22 Ii bonds
and/or other documents evidencing the above-mentioned
il
23 ;:obligations of affiliated companies. Also, I have been unable to
'\
I
24 f! discover any documents ev idencing securi ty agreements relating or

25 II referring to these obligations or any documents relating or


II
26

,I
'I
:1
'hamilton:dec-baly -6-
~I
l.
• •
referring to property designated as collateral for these

2 obi igations.

3 15. Concurrent with the above transfers, HTC's Balance

4 Sheet for the year ending December 31, 1990 indicates that a total

5 .!Of $34,191,052 in cash and investments, was unavailable for


:1
6 :remittance to various taxing authorities for HTC's clients' taxes

7 'and accrued tax penalties. A true and correct copy of HTC's


Ii

8 December 31, 1990 Balance Sheet is attached hereto as Exhibit F.


i'
~l
9 16. HTC's Consolidated Bndget lists $8,705,375.00 in
:I
I ,
10 operating ~nd paycoll expenses for 1991. $,3,945,008.00 of
:1
:1
11 revenues to cover these expenses is to be generated by various
Ii
12 :; fees and short-term interest HTC wi 11 earn on monies deposi ted by
II
13 ;IHTC clients in impound accounts set up to facilitate payment of

14 ~'its clients' taxes by HTC. An additional, $5,130,000.00 of

15 \1 revenues to cover these expenses is to be generated by interest


11
16 dearned on various notes and/or bonds receivable from affiliated
!!
~!
17 companies. A true and correct copy of HTC's Consolidated Budget

18 t s attached hereto as Exhibit G.

19 Ii 17 . Based on HTC' s documents, HTC purchased a

20 I: 1 imousine, which I am informed and bel ieve was for the personal
l!
;1

21 .! use of Armstrong. This 1 imousine is 1 isted as equipment on the


I:
I;
22 ;:Balance Sheet. Also, Thomas Humphrey was hired by HTC in the

23 !Icapacity of Armstrong's chauffeur.


J

24

25
26

hamilton:dec-baty -7-
I,

I declare under penalty of perjury that the foregoing is

2 true and correct and that this declaration was executed on April

3 1, 1991 at San Francisco, California.

5 II Lee s. Baly

6 ,:
:i
If
7
II
J,

B
II

9 :1:1
r,
10
Ii
I'

11 'I
li
il
12

13 II
jl
14 :1
Ii

15 :\
Il
16
II
17
!I
18
II
19
I
1

20 III
!l

21 ~ I
:\
22 1

23 ,\
i
24 !
I
25

26

hamilton:dec·baLy -8-
• •
FELDMAN, WALDMAN & KLINE
2
A Professional Corporation
PATRICIA S. MAR
FilED
L.J. CHRIS MARTINIAK
3 ALAN J. ZACHARIN
2700 Russ Building
J 235 Montgomery street
San Francisco, CA 94104
5 Telephone: (415) 981-1300

6 Attorneys for Trustee


Frederick s. Wyle
7

8
UNITED STATES BANKRUPTCY COURT
9
NORTHERN DISTRICT OF CALIFORNIA
10
In re ) BANKRUPTCY NO. 91-31077 LK
II )
HAMILTON TAFT & COMPANY, ) Chapter 11
)
12
Debtor. )
13 -~--~--------------)

1A

15
FREDERICK S. WYLE, Trustee in
Bankruptcy of Hamilton Taft &
Company,
91 )

~~~e3arY progeg). L
) DECLARATION OF FREDERICK S.
Plaintiff, ) WYLE, TRUSTEE IN BANKRUPTCY,
16
) IN SUPPORT OF APPLICATION
v. ) FOR TEMPORARY RESTRAINING
17
) ORDER
CONNIE c. ARMSTRONG, JR., et al. )
18
)
Defendants. )
19
----~------~---~---)
20

2I
I, Frederick S. Wyle, declare:
22 1. I was dUly appointed Trustee of Debtor on March 26,
23 1991. Since that time I have begun my investigation of the books
24 and records of the Debtor, taken control and management of the
25 affairs of the Debtor, and have exercised best efforts to locate,
26
..... -"._ ..... -

F. WYLE DECLARATION -1-


• •
retrieve and preserve the assets and business of Debtor. I have

2 reviewed the correspondence files in the offices of the exec~t':'·.. ~=

] 0 f the Debtor, includ ing those of Mr. Armstrong and his execu t: i '/e

4 secretary, and have reviewed numerous other files and records. I

5 have had my accountant review financil files and records, a~j we

6 have both made inquiries of the office management and staff who

7 would reasonably know of relevant records, and documentation.

9 2. I have only been able to find approximately

10
$5,000,000 in liquid assets in various accounts of Debtor.

I I

3. I found the records attached hereto as Exhibit A in


12

1:} Armstrong's office showing, inter alia, that:

14
A. Armstrong is the chairman of the board and sole

stockholder of The Remington Companies, Inc.


15
("Remington") and its subsidiaries.
16
8. Remington is in the business of purchasing failing
17
businesses and attempting to turn them around.
18

19
c. The subsidiaries of Remington include the following:

(i) Winthrop Realty ("Winthrop"): described as


20
"set up to hold personal assets" inclUding the
1\
Double C Ranch which was "purchased as a
22
hobby".
23
(ii) Hamilton Taft & Company (Debtor): Described as
24
making all "required tax payments on behalf of
25
the Client in the appropriate amounts and
26

F. WYLE DECLARATION -2-


• •
manner ... on or before the statutory

deadlines" and filing "all Employer related

J quarterly, monthly, and annual payroll tax

J reports ... on a timely basis". The document

5 states that "given the contractual

6 responsibilities assumed by Hamilton Taft and

7 the very nature of the impounded monies, the

a adoption of and adherence to strict investment

guidelines and practices is absolutely

critical to Hamilton Taft's fulfilling its

11
contractual obligations .... The basic nature

12
of Hamilton Taft client relationship is one of

1J
trust ... "

IA
(iii) Dresdner Petroleum, Inc.: Formed to

"capitalize on undervalued oil and gas reserve


15
acquisition and development opportunities".
16

(iv) River City Fair: A restaurant/entertainment


17
center with a restaurant, video game center,
18
bar, etc.
19
(v) CCAJ, Inc.: A joint venturer with Gulfstates
20
Ventures, Inc. in Professional Investment Fund
21
("PIF"). syndicated and managed shopping
22
center investment partnerships.
23
(vi) chayson Mortgage Company: Provides debt and
24
equity financing on real estate.
25

26

F. W~LE DECLARATION -3-


• •
(vii) Lindsey Insurance: A commercial insurance

2 company.

J (viii) Cal Pacific: a subsidiary of Remington which

j performs construction management and general

5 construction for Remington related entities

6 and others.

7 4. I found the records attached hereto as Exhibit B in

8 Armstrong's office showlng, inter alia, that:

9 A. As of November 30, 1990 Debtor had long term receivables

10 from affiliated conpanies on its balance sheet in the

1\
amount of 68.8 ~~llion dollars, consisting of 57 million

12
dollar bonds and 11.8 million dollar notes. This

13
reflects transfers from Debtor to affiliated companies

lJ totalling $68.8 million.

15
B. The Balance Sheet also showed uTax Agency Payable" of

16
$86,120,001 as of November, 1990.

17
5. I found the records attached hereto as Exhibit C in
\8

19
Armstrong's office showing, inter alia, that:

A. Armstrong describes Debtor as part of the Knightsbridge


20

2\
companies, "a consortium" of privately held businesses.
There are "21 corporations under the Knightsbridge
22
umbrella".
23
B. In addition to Debtor, this Knightsbridge consortium
24
includes Remington (Which is identified as formerly
25
Dresdner Enterprises). Remington's business is
26
~"---

F. WYLE DECLARATION -4-



described as looking for businesses that are unde~­

2 performing and whose #assets are intended to be o~ne=

] for a protracted and indefinite period of time".

c. other Knightsbridge consortium members are Cal-Pacific,

5 Inc., Chayson Mortgage and Investment Company, Dresdne~

6 Petroleum, Lindsey Insurance, Inc., and The Double C

7 Cattle Company.

9 6. I found additional records in Armstrong's office

\0 relating to the acquisition or proposed acquisition of Parker

11 Automotive, a distressed company, for $3,000,000. It has been

12
reported that Armstrong, or one of his entities, has just recently

13
made this acquisition.

1.1
7. I have reviewed the findings of my accountant, Lee

15
Baly, and am thus informed that in January and February of this
year there have been transfers of $11,000,000 of Debtor's assets
16
to affiliated companies over and above the $68.8 million referred
\7
to above, bringing the total known transfers (net) from Debtor to
18
affiliated companies to almost $80,000,000.
19

20
8. I have asked Mr. Armstrong, through his attorney,
21
Lawrence Callaghan, for information regarding the transfer of
22
assets of the Debtor to the other Armstrong entities, and the
23
assets acquired by the various Armstrong entities. Mr. Callaghan
24
has advised me that Mr. Armstrong, on advice of his counsel, will
25
not provide such information.
20

.... '-,-"'-""~

F. WYLE DECLARATION -5-



Despite diligent investi~ation, including inqui~~~;

3 to Mr. Armstrong and the remaining management at Debtor, I r.::l /2


1

been unable to find any notes, bonds, collateral, security

5 agreements, or other instruments pertaining to or documenting the

6 $68,800/000 in intercompany long term receivables shown on the

7 Debtor's financial statements. Nor have I found any such

8
documentation for the $11,000,000 in transfers made in 1991,

9
referred to above/ which are shawn on the books as short term

10
notes and receivables. Nor have I found any evidence of interest

11
payments on these "notes" or "bonds", even though the 1991 budget

projects that over half of the revenues for Debtor were to come as
12
interest on the $57,000,000 intercompany "bond".
13

14
10. The primary business of the Armstrong Companies, as
15
described in the materials referred to above, appears to be
16
somewhat risky and speCUlative in that it involves the acquisition
17
of failing or nunder performing n companies with the hope of
18
turning them around. Investments in such businesses are usually
19
illiquid and insecure.
20

21
I declare under penalty of perjury that the foregoing is true
22
and correct and that this declaration has been executed by my
23
signature in San Francisco California on April 2, 1991.
24

25

26

F. WYLE DECLARATION
• •
Connie C. Armstrong, Jr.
)BII TL'R"7l£ CREEJ( 80LlE\"'-RD • sun 1100 • DALLAS. T'E\..t,S i!J219

PERSONAL

AS a r,atlve Texar" J receIVed my academic education f:""orr, Greenf'111i Preparatory SChool


A~er reC81Vlrig a footoal: SCr"loa~shlp, I attended L1e Universrty 01 Richmond in Rdlmolic,
Virginia, On my ~etwrn to Dallas. ArmstronQ Insulation was formed In 1977, From, 982
to i 986, I sSi"Ved as Presiden: of Texas- Commercial, Inc. whIch spaciaHzad in construction
manageme!iL P:-8ssntJy\ I am a major stockholder In UrJted BSflk & Trust end am
seeKinG new avenues of ex~anslon lntc other barlklno InstJtwtJons. SInce 1985 J have
se~yea as the ChaIrman of the Board and only stockholder of The Aemington Companies/
1 I
Inc. and rts S~bsldlanes.

BUSINESS OBJEcTrve

Tt",E RemiliGt:>n C:lmpanies, Inc, was founded for the express purpose of caprtal;zing on
t..Jsirass opoonunitJes created by weak financial structural mansQement or economic
cowntwrns. ir1e Remln;JtOn Companies, Inc. has assembled an executJve manBQement
tesrTl CSJ8cie of icentJtying, acquiring. restructuring and managing tnsS$ opponunlties.
ThiS strategy has served The Remington CompanIes well end has suecsedso In
;)csitioning the Company tor cor5istent growttL

WJnthrop Realtyl purchased February 9, 1990, was set up as the entity to hOld
pe~sO:ial assets. This inclUdes the {)oJJOJe C RfU1Ch conSlsttng of approximately
3,000 acres of grasSlands situat&d on HiQhway 1-20, 80 miles east of DaJlas.
Alt~Ol...'Qh this ranch was purchased as e hobby, rt's intenticliS were foc~sed
towaros a major bUSIness acquisitioil. The Double C Ranch has the c:aPBcJry of
accommoaatinQ 4,000 head of cat"Ue yearly. These first year profectiO('l$ indicate
the sale 01 500,000 Ibs, of beef, blJt will require at least 8·40 months for first
dellve~. \ncreaslnQ this prOductivity to 900,000 Ibs. tf so desired is optionaL Mixed
breed slocker cattle, weiQhinQ approX!mate~ 350 Ibs., are unloaded at our livestock
t"',andlinQ pens where they are inoculated. administered vitamins aJonQ with
neC$ssary nutrltlonaf supplements. The cattle are then transferred to hOldinQ pens.
where tney are fed hiQh protein hey and have free choice to medicated receiver-
precondrtlonlnQ feed. Aftar at least tan days. the cattle are branded. castrated, H
ne&ded. dehorned end administered any addruonal treatment requir~d. The cattle
are trlen transferred to grassland pastures planted with improved coastal bermuda.
AnaJysis shOws that this grass variety provides the best 8vallabta fNsstock 10rSQ6
and prOtelii nutritional requlfements. DurinQ this period of time, an average weight
Qain per animal of over 1.5 Ibs. per day Is expected. At the end of this s!x month
prOQram the canle wlll welQh apprOXJmatety BOO Ibs. Thereafter. the catt1e win be
l

'---
'-"7':~-."""
.' ""- - - .. -- ....' '" .......--..-
L . _._-

Connie C, Armstrong, Jr.
PaQe 2

~8.l"'sfarred ~o a confined feeding lot where they are Qiven a ratioo of hlgn protein
feed cetera ceing slau~htered. Negotiations are presentJy t:ein~ cor.sidered Wlt"'l
,11aJor Japarl6sa b~yers tor thiS beef. A. packaginQ plMt will be built to cellVer rep
q~aijry beef once aJi contract agreements are acetpted,

HamlltDn Talt & Compsrsy was aequired in March ot 1sas and is ~resent!y home·
based in San Franc!sco. Hamilton Taft & Compatiy was founded in 1977 end IS
regarded as the largest independently-owned payroll tax processor In tJie nation,
With a substantial capital Infusion and a more dearly defined ma.M<etinQ concept,
Hamilton Taft & Company has q~jckJy beQSJ1 to reQsin its momentum. Hamitton
Taft & Company is a payroil tax deposIt and ftlir1Q service bureau performing
servIces on ber,elf 01 its' ciier.tele, Hamilton Taft will deposit the required tax
payments on banalf of tr,a Client in tria appropriate amounts and manr.er 'InCJudilig
payment by check where allowed to the appropriate deposItory on or before the
s:atlwtory deadlir.es. Harr.i1tcn Taft will fila all Employer refated qlJsneriy mOnthly
I I

ar:d annual payrOll ~ax reports for FederaL State and locaf aQencies on a timely
basis. Tr,e Company hosts not only the servies fees, but the investment income
derived from the sophisticated cash mal1sQement 01 aJ'l annuaJ cash flow af over
$4 bilfion generated from its 30C larQ8 clientele. Provided trlat all tax date has been
received accurately and tImely -iamilton Ta.ft accepts the respoi'.sibdity to pay ~re
appropriate taxes ana WliJ aSSt..rr,e tne liability for payment for penalties assocIated
wIth eJ"'at particular depcslt. Since Hamilton Taft's ma10r functIon :'S U"'18 coilectl0ri
and remittance of client taxes, tMe most descriptive statement of what Hamilton Taft
cces is that of providing a financial servIce. Therefore, ;f Hamilton Taft were to be
categorized! It would prooabty fall under tne financlaJ services industry. However ,
tsx oeposlting and nl1in~ is a 'J6ry distInct and unique business wIth in the broad
firsf"Ic:al seNlces area and is totally unrelated in function, structure and purpose
l

to the more commonty known financial services. such as banking. Payroll tax
caposititig and filing simply dOes not at this pojnt have any such externally impcsed
Qwideiines or regulatory structure. Therefors, aJthOUQh basicaJly unregulated I

Hamilton Taft's deity business puts It In contact with both regulatory aganc':ies
such as the IRS as well as with highly regulated private owsinesses such as banks
1

and securTties dealers, Tnla Cicse working relationship not onjy forces upon
Hamilton Taft a high degree at self.. regulation. compliance and contrOl, but also
implies rigid external regulation as HamUton Taft conduCtS its business with these
highly regulated Instit\Jtlons. Other than tnl ·Proper usa of CJient funds· there are
no stipulations whether staMory written or tmptled, on Hamilton Taft's use of Client
I

funds other than that which prudent rproper') business would dictate. Hamilton
Ta1f s re"enUf)$ and prlc1~, IncludIng Client rebate arrangements. are totajly
dependent on invesunants. Given the contractuaJ responsibilities assumed by
Hamilton Taft and the vary natura ot the impounded monies. tMe adoption of and
adherence to strlct Investment guidelInes and pradlces Is absolutely critical to
Hamilton Tattls fulfilling its COlitractuaJ obligations and to Its ongoing operations.
Tne basic nature of Hamilton Taft client relationship is ene 0' trust l built upon an
~onnje C. ArmStfOnQI Jr.
PaQe 3

unbroken and uncompromised record of MnanctaJ inteQrlty and contraett,;a1


complianca since 1979. At this timet there does not appear to be any offida1
reg~:aticns governing the sctivtties ot rompanjas suCh as Hamltton Taft, only to tre
eX1er,t ~"',at Harr'llton Taft complies witt! the same tax !Qency requlremer.ts as affeCt
the tax~ayer clre~Jy. In reQard~ to Hamilton Taft'g diem relationships arrd Qenera l
:cntrac:ual freedoms, any contl,.,ll.Jll"lQ lack of reQufB~on is Qoi~ to leave this area
somewhat broad, free form at"ld subject ooty to further setf regula~on by key
players in the industry ot which Hami~on Tan f9 certainly one. The tremendous
V'ar~ety of terms. conditions and agreements employed by HamIlton Taft's
comr:et;tcrs h..rtr.er attests to the lack of industry re~ulation, The CompeJiY is
co~fident that it will continue to generate strong revenue Qrowth tnrou~hout the
, 9$0'$.

OresdnBr PetTo/f;XJm. Inc. the r;ewly formed sucsldlary \ was created to identify ana
I

:aOlta!ize on undervalued oil and Qas reserve acqut5ttion and development


cpportunlties. The first prolect, which closed early May. 1saO, is expec:ed to retwrn
~u!l payot..t within a year. Presently, there are revenues being ~er.eratad, from
orcduction of appro)(jmately , 50 carrels of oil per day. through racomplet1on and
secor-cary rec:.very technl~Les, it is prOie~ed that tlils dally production level will
:rc~ease by year'end [0 900-',000 barrels a day. SiQnl~cant "wilocat- dnllinQ is
scheduled to oSQin .in June.

River CIty Fair Is a new restaurant/entertainment concept which cpened Or"l


Oecember 8 i ass, in San AntorHO, Texas. River City Fair is cesiQned to be a
1

Ql.a1ity resta~rant boasting of everything from New York steaks to oriQir.al salads.
A fun envlroncr.erit for late night snacking, wrth unique appetizers. A. playgrOynd
i~clud!ng eli 18 hole Pebble Beach Golf Simulator, blliiarcs, shuffleboard, skeetbeJl
and over '00 vIdeo games. An upbeat, casual bar servlnQ specialty drll"lks anc a
full food menu, A large patio araa overlooking the beautJfully landscaped grouncs,
A private dining/banquet room that can accommodate over 100 people. The
CCj8ctives In this transaction were to create siQniflcant cash flow , the acquiSition
cf real estate for an alternatIve future use and the establishment of a
restaurant/gaming concept whlcn has Q60Qraphic expansion potential.

CCAJ, Inc., entered into a jOint IJenture wtth Gutfst9tss Ventures. Inc. entitled
PrclessJonaJ Investmsnt Fund (PIF). PIF acquired aJl of the assets of Vv'hltehall
Capital, whicn functioned for eight years as an entity sponsorIng the syndication
and management of limited partnerships which acquired 5.4 million square feet of
neighborhood shopping centers trrouQhout the southern United States. Properties
held oy these partnerships CCri',:,ned to be the 7th largest neighborhood retail
shopping center portfolio ot S200 million. Major grocery. drug and venery Chains
comprise 70·75% of the occupancy in Ii typlcaJ property. The portfolio had
currently 93% occupied and was aChieving signlflcat'lt cash flow!. The real estate
assets were acquired for 25% of value In an opportunistjc purcnase from the
Connie C, Armstrong Jr.
F'SQ6 4

l

pnnc:,~al of Whitehall ca~rtaL The QoeJ of this acquisition was the immed:a~e
c~eat10n ot signlftCSJit cash fiow, the purchase of undervalued assets ana :r,6
;estruc~urj{i\; oppot1untty whlcl'l this porfuilo repressnted. Spec:ficaily, a n.;tLJre
restrwctunnQ was intended whicn would ~ave Involved the pt..rc,~asa of lj~rtec
partners interests at substantial discounts and tl18 refinandr.Q of the p(oper-~es
l

wnic~ in ~rn wouid (a) permit the conversion of notes receivable to CSST"l arid (b)
create additional cash by borrowing against the [and now owned 0'1 PIF, AC!"'lievint;
contral ot the 7~ :ergsst r sighborhood retail 9hopping center portfade in ~'e U.S.
1

es~abdshad a presence in the industry whereby changes in trends, worKout


oppcr:unities etC, were made kr,own to the Joint venture, wnen an attractive
l

opportunrty to sell our interest in PIF was presented, It was a consensus ot opinic"
that we exerCise that optIon.

Chayson Mortgage Company provides debt and equity ~nanc\"g on "eal estate.
Cra'isoli also :orsiders the finanCIng of sxisting or to-be·bullt prope-, 95 Sl..Icn as
oHice buildings, shoppmQ centers, hotels, industrfej builoirgs, rrn.• i:~·rarr,ily ana
spec:al purpose proJects,

Ljndsay Insurance Is a commercial insurance COi'i\pany which is expar"ding ~apidly


CLe to U;e groW1h of Remington affiliates, Br'ld has recentJy opened a Dallas oHice
I"reiationships
aodruon to its office In Abilene, Undsey Insurance's long eStabllshea
accessibility to the malor InsurSf'lce markets neeceo to
have
accommodate ReminQton's needs. In order to ertt1ance its ~rowth of thIS
~rlSUrance company. several markets in the metroplex are being explored.

cal Pacific [9 a subsidi~ of The Reming;on Companies. Inc" and is c:.;rrantly


active in evaluating desiQn and cost specrlications for an real estate cppo~~rllties.
The base of the company is construction management and build-to-sult proJects.
Tr.s Company's performance range Is from land acquIsition to complete finisn Ot.,;t
ot any project Thjs newly activated enttty performs construetJon mansQement aJiC
ganeraJ construcOon for Remington relet-ad en'd1lea and tiiird parties.

SUMMARV

AS or·e Cali clearly see, Remington'S acquisitions to date have been geared ro
opportunities believed to involve the creation of value. Even those entities which were
initially acquired or formed to ald Remington in monitorIng or mSfl8Qin9 its assets have
been carefully woven Into tt1e Company's value enhancement perspective. me
Remington Companies. Inc. wiU continue seeking to acquire companies that demor,strata
strong cash ftow potential. Revenues witl be used to provfde investment capttaj for tJie
acqUired companies and to finance additionaJ transactions. The RemJngtOl'l Campanles
Inc. IS ousinf!S$ strategy of targeting distressed cash flew companies 'Of acquisitions has
a\ready pro\len successiul, and 'the company continues to be confident that rnis is a
stratsQY tnat will serve it well into the future.
REFERENCES

DirO Sl,JCCOla
Smith Barney
5000 Siren Street, Suite 7000
Newport Beach. CaJi'fomia 92660
(714 )851-4223
(800)408-J352
Fax (714 )SS 1-4229

Stuart Dickinson
Merrill Lynch
P:ercs. Fenner & SmIH\ Ino.
The Colonn ada
, 5.303 Dallas Parkway, Suite 150 LS 23
1

Dallas. Texas 75248


(214)934~

Kent Hance
Texas Railroad Commission ChSJrman
P.O. 60x 12412
Austin. Texas 78711·2412
(512)463-7144

David MarQulies
DavId MargUlies &. ASSOCiates
6440 N. Central Expressway
Suite 212
Dallas, Texas 75206
(214)388-4296

Kerttl VOigtS
KPMG Peat Msrvvick
Suite 1400, Thanksgiving Tower
'601 Elm Street
DaJlas Texas 75201
l

(214)7S4-2000
BALAN CE SHEET AS
NOVEMBER 30, 1

ASSETS
Cunenl Auet.s:
C&sb 4,154,571
Inves~tJ 12,479.157
ClieD[ Receivables 369,747
Other Receivables 758,715
Reulv.ble.s (CIGNA) 122,639
De pes itsJPre paids 284,458
Toul Current Ass.etS 18,169,887

Property, Plant &. Equipment 2,990,730


Softv,.:are de.... In pcog.reu 668,514
Less Accwn Depredation (1.201,948)
Net Property & Equip 2,457,296

Lrr Receivables
Alf. Note$ Roc. 11.800.000
Aff. Bonds Roc. 57,000,000
TOlil Lrr R~eiYables 68,800,000

Intangibles
Customer Accts - Net 2.233,336
Goodwill - Net 8,385,961

Total Assets 100,046,480

UABILITIES & EQUITY


CURRENT LlABlLlTIES
Accounts Payable 164,981
Tn Agency Payablo 36,120,001
Accrued Liab. J34,134
Cur. Portion Cap t....e.a..ses 65,103
NIP Current 300,000
Aff. NIP Current 5,631.931
Tota.l Current Liabilitiu 92,416, ISO

Ca p. l..e.a.sea - LIT 156,612


T ota! Liabilities 92,S12,762

Stockholder Eqwty
Common St.ock: 35,059
Paid- in Capital lSIO~)I,941
Retained Earnings (2,749,994)
Curre.nt Yeu Net ln~me (4,813.218)
Tot.a.l St.ockholder EqUity 7,473,718
T o4al Liabilities &. Equity 100,046,480
\Wll' LlCBd un ..
t::J4'UY
LALUIct SKEf!
AS 01 OE~E' ". '990

ASSIU

Cl.lrrt'rlt ASSHI:
cun (lioa ') s<.m.b36
In~est~t! (Note 2) 1.'6.960.092
Cl ient R~eiv.btu (wort 3) 1.2,0'96
Ot~e~ I~tivablf' (~C{f 3) ", 22IJ, 202
O~sits/Pr~ids (vott 5) 12S5,163
Total C~rrent Asseta 'S1.213.189

Property, "l&l'lt , Equi;:mt'f'lt (WH) {Nott 6> 1,.m,394


C;oftloara Ow. In Pr~re-11 (lioa 6) H64,3U
Total Pr~rry &~evelopeeent I2,B7,704

L~ terTI Re-cri't'abIH:
Hfl. Votu he. (!;Qte 4) '''.MO,OOO
AHl. Bores he. (\lot. 4) "51,000 000
I

Total long lena ~~eivabt C1l

I" t al"'q i b ( ~ :
Custctl'll!r Acc~U'lIet (Wote 7) l2. ,n, 503
CoodWill-Wet (Hot. 7) loa 302 , '01
I

Total .uutl

LtAlIL1TtES &EQUITY

CUrrent lfebflfrf..:
Ac~ount. '.~l. 1<t..6.a33
Tu A9~i" Payable (lIote 8) 1124 I 9'55. ~
A..:cNed PeNl ttes Payable SI.91O,m
A.ccrwd lflibilhfn (llete 1~) S1M,S'.
Current 'OI"t~on eaph.t L...... (Iota U, S65,764
Current ~,.t tan loU hylble' {Mota 12) SJOO,OOO
Affl. Iote 'IYIbt. Current (lot. t!, 13.3'5,955
fetal Cw't1II'\t l fabU ftl.

c.pital lea,. . . leng T.rm (Mote 1') "50,821


Total liabilIties Ins. \91.813

Stocl:.hct~ [q,J( ty:


tClllCQl1 S t ~k 135.059
'atd- fn capfUl S1S,OCU.94'
R.ta{~ Earnings ('2,7'9.994.)
Current Year let t/"ICOIIIllit ("7.1,50,318'.
Totat ttcdholdlw-a Eq.Jf ty nos, t63,3n)
Total lfabfl htea & Eqa.,It.., I1.3J , Q3a, SO\

EX}iIBIT F
IWUlTc:JW un & ~AJI'"
I wroE Si ATOI!ElIT

rca THt TEAl (WDED OECOlBU 31. 1990

lEU fO
OE~8'l8e:1 OArE

IIEI.,"EIlUES:
\ " .... es L'"le"t Inures!: h ... ~ "'3,818 S2,~3,011.
l"terl!H 11"<0'T'lit • trlt.re~ ~SO. 9!6 13,704.563
\1'I[ernt Creodi rs ($54,9'!.C. ) ai;J,109)
~ont"ly Strv;;e F~s lJ9, In IS09,121
Tran$Deti~ ,~S SH,813 1';1~3,329
Soe-c i.1 l:~arIilU ''',,301 s.o7. 120
Or~er Fe~$ & it .... ~s S3,'"SO 176,220
TOTAL llEVEIIU£S s.oJO. b{lS S7,21O,.na

£~PLOY£E exP£~s£S:
Sl(.~;l!$ & ~a~el 1~.0'9S 13.1.09, '29
Part -T ime & 'f~ s.6. D,O ,~), 7155
CNer t \r.'llt SO,S'7 171, CS6
Commisi~ & Bonuses s.6Q, Q~S ~159,1!4
ElI'1Jt 0'1 e-e 8e{'.t fi ts SOl, UK . l203,.391
P a.."ro II Lues "7,,81 \2n,735
a@loc~tion E~~s~ 113,~5 tOe, 4.82
l4i 51:. PIt ~e,....ic. Fe-e-s U92 n. 07'0
tOTAL ~lOTEE (XPEW$£S '521,876 U,27I.,504

OPEUn"G OP'{I*SU:
Occupancy Costs SL9.2U 1587,038
~11'I.Ss :~~r~. s!6.T32 $27'5, \28
Professional ~~ ~,9'52 S465,S14
IaN .'''''' • CU,691l t42,4.84
TILl"" 'HI I, tH ~., t tf'le'OI.II "0,003 11'4,411
Due' & ~~riptl~ ~,71' ~2,33a
S~tf" sa,8C' "OS ,493
Tel~ona 1",5\1 "35,65t
Poetagl 13,S80 l24,W.
T~IV.(, Lodging &'ood 121,873 S529,131
CQt'lvMtfcne & ,,"lings ST,4aS S35,287
Trail"'dl"ll 160,36' UJ,OOO
tourler $.el""'ifcGtA 1',050 '-2'.9'4
£quf pn8'I'\t lu... "0,2'00 S9t,509
Auto E.-penst1l 11,266 160,044
~.rtflth9 &'ra.ottcn lZt ,887 191,S11
equi~t JIla fnttNllt'lCl 1J9S lU7,_
tntltrnll"llllltnC a2,U,S 1.28,310
O~r toe iat tQl'l ~',m sm,~
Inter.. t EApens. • tnt.rc~ 245,3& taS.74.4
lost en tal. of .'Slt 1.0 s.211~
TOtAL CPEtiT t16C ElPE\tSCS 133.0,1S) l3,lb'il,a95
~WD tOTAL EXP£~SES s.!lSD,OZ9 17,644,696

IdET thCOE ILEfOR£ $1>£ttAL ClAlca <'&127,4Z'J (S434,358)


metAL CKAiC;;£S:
htro(H~ry ~ ('tNltles) S1' ,l..!2,404 "4,870,U5
Prior Puled AdJuatYlc:ntl (CIsne W/O. !'art!"qAU) ~2,9S5 '262,8)1
AMorelzacton of Int~{bl .. 11'S6,~'O ",w,m
MET INCOME/(LOSS) ($12, \19,6'93) (It 7j &5Q,J11)
_ _ 1lI • • ~ 1lS:tl• • _.~
B 100 (11/86) BANKRUPTCY
341 MEETING <Date. Time. L.ac'>
DO.r
DISCHARGE HEAR1NGtDate.Time.Lec 523/727 COMPLAINT
CLAIM DEADLINE DIST. NO.
0971

DATE PETITION FILED REOPENED
03/20/91
OFF. NO.
3
DOCKET NUMBER
YA - NUMBER
91 31077
CHECK IF APPLICABLE
<J Joint
r;i",;,tilinn
NAME OF DE8TOR (Last. First. Middlel NAME OF JOINT DEBTOR
HAMI LTON TAFT & COMPANY
AKA/DBA 1. AKAIDBA 4.
2. 5.
3. 6.
ss
~iii
or EMPLOYER fD 5S or EMPLOYER ID

c ADDRESS OF ONE I'\ARKET PLAZA ADuRE5S OF


DEBTOR SPEAR STREET TOWER, 3ZND FLOOR JT. DEBTOR
SAN FRANCISCO
NAME OF COUNTY
SAN FRANCISCO
CA 941051001
\ COUNTY CODE
06Q75
I TRUSTEE CODE NAME OF JUDGE
LLOYD KING
IJUDGE
A189
CODE

TYPE OF CASE (Check One Box) NATURE OF DeBTOR (Check One Box)
<3 VrlluntDrv X <l Involuntnrv 'A. <l Business leomolC1e below) <1 ~.t:\~R '~pc,n.,oh~lo~i
COMMENCED UNDER (Check One Box) IF BUSINESS, FORM OF ORGANIZATION (Check One Box)
<l eh. 7 <I CIl. 11 ReilroBd <) Indlvil1ual <3 Pliunership
<l ::::h. 7 Broker <l Cn. 12 <J Corp. Publicly Held J..
<1 Corp. Closely-Held
<J Ch. 9 <I Ch. 13 TYPE OF BUSINESS (Check One Boxl
}.
<3 eM 11 <I .sec. :lOA <J Farm@r <l Trans- <1 COI'\!l1rUCt ion

ESTfMATEO NO. CREDITORS X <I Profess. POrt.DtC'l <1 Reel E!:ll'1tl!


1-'5 16-49 50-99 100-899 10OQ-Over
<1 Relaill <I Mftr.1 <3 Othar
ml 0 0 0 0 WilsIe. Mining Busines!i
ESTIMATED ASSETS UN ODD's OF DOLLARS) EST. NUMBER OF EMPLOVEES-CH. 1 1 AND CH. 12 ONLV
Under 50 50-99 100-499 500-999 tOOO-Ovor 0 '-19 20-99 100-999 1000-0vor
0 0 0 0 0 IX! 0 0 0 0
ESTJMATED LIABILITIES (IN DOD's OF DOLLARS) EST.NO. OF EQU. SECURITY HOLDERS-CH. 11 & CH.12 ONLY
Under 50 50-99 100-499 500-999 1000-0Y&r 0 1-19 20-99 100-999 lOCO-Over

0 0 0 0 0 IXI 0 0 0 0
'#ICC~G,3 - t{;(;C. C()

ADORNEY FOR DE8TOR(NAME.ADDRESS.AND TELEPHONE NOj TRUSTEE (NAME. ADDRESS AND TELEPHONE NUMBER)
MICHAEL H. AHRENS
BRONSON) BRONSON t Me KINNON Frederick Wyle
505 MONTGOMERY STREET 235 Montgomery St., #2500
SAN FRANCISCO CA 94111 San Francisco, CA 94104
TEL: 415-986-4200 TEL: 415-788-0781
Date of Document
BANKRUPTCY CASE RECORD Date o! Document
BANKRUPTCY CASE RECORD
Entrv Number Entrv Number
Application and Order fer Payment Order/Notice to File Cla.ims and
of Installment Filing Fee Certificate of Mailing
Notice of Discharge Hearing/ilIld
Certificate of Mailing
NOllce of Confirmation Hearing/and
Certificate of Mailing
Statement of Affairs and
Section 341 Meeting conducted
Schedules (or Ch. 13 Statement)
SchedUle of Income and
Discharge entered
Exp endi tur as
( Statement 0 f Debtor's Intentions
Notice of Discharge &
\.
Certification of Mailina
Trustee's Final Report
Appointment of Trustee
o No Asset 0 Asset
Trustee's Bond & Order Approvingl
Orders of Final Distribution
Trustee Acceptance
Notice of Section 341 Meeting &
Order Closing Case
Certificate of Mailing
EROCEOURt FOR OBTAININ
\ .. ..
%DENTIFY D:F.SlRED ttOCfJMENTS
DOCUMENT NUMBER BELew OR BOTH.
{jiOTOCOPIES
BY PAPERCLIPPING PAGES OR INDICATING
• ,.
~T;~

2) THE CHARGE YS $ .50 PER PAGE. PLEASE PAY :IN ADVANCE BY BUSINESS
CHEeR, HONEY'. ORDER, CASHIER'S CHECK OR EXACT CHANGE. 60 PEP~NA!-.,
CHECKS"

3) !'HE nTRNAROUND TIME FOR COPIES IS 3 TO 1 WORKING DAYS DEPENDING ON


DEMAND.
'~ CABI JDJm CASE IlUKSER

11_ _

stATEMENT Of AFFAIRS

SCNEOOlES Of WETS m UMll.ll liS lIVED


~ APR 8- 1991
A ICHEWLES CLAIMS cocaT

• sttfEWlES CHAPTER 13 'UN ;t/1F-'t1..J....;;d~C


.....- .....,
b7C
. ICLERK
~ Dt SCMARGE Of DESC==fIr::::::ro=--=S::::":'TA=TE:-=""S-=-BA~M{~R""""'U:-:lpTCY COURT
SAN FRANCISCOt 'CA t,
II
r0I OtHER (Ghre docket IUllber DC£RTlFltATJON (55.00 PER l:eRTlF1CATJOl:I)
L:::SJ ti pen t bl e)

rDOCKE7':; -~F1'-SIDE-oF-FILE

'J'OTAL NUMBER OF PAGES:_AT $ .50 PER PAGE • $ b7C

PLEASE SPECIFY WHICH YOU WOULD


NAME: ,:.::..::........:::..:..=.....----=---===---l
LIRE:
PLEASE MAIL COPIES TO ADDRESS
AT RIGHT
ADDRESS: 'i 5" 0 6 tJlf}64/
-.;---..;---_ ..........
5r/F, ~" F 13£
Gm~ _-----------
~LEASE CALL ME TO PIOlt UP

f-'_u-""._.",--.:
('!'EL .) 55 3 - 7 Ij,00 i'i 'J- 7 Copy work by:~-_=__~~--___::~-
Deputy clerk Date

. sf 12/22/88

---------
17?f} -~f-131S-~-- Cf
----'S"ulP- {
- ;-.
• .~
/~~ ftL P

-iitpf1-s f~ 9dr2~
4/3/91

~STRONG'
Mr · Baker:\f7
RE: CONNIE/C. JR.,
AKA 9HIP~STRONG;
DBAvHAMILTON TAFT AND COMPANY;
32ND FLOOR, SPEAR STREET TOWER,
SAN FRANCISCO, CALIFORNIA;
FRAUD BY WIRE; MAIL FRAUD; TAX FRAUD i
00: SAN FRANCISCO

San Francisco has initiated a Fraud By Wire


investigation based on information received from the former
Comptroller of Hamilton Taft and Company (HTC) that the sUbject,
Armstrong, has'embezzled over $100 million from the firm's
clients over the last three years. ,These allegations continue to
be front-page news in San Francisco and on 3/15/91, the Wall
street Journal ran a front7page article detailing the allegations
(copy attached).
HTC contracts ,with companies who owe taxes to numerous
state and local taxing authorities. Client companies make a lump
sum wire transfer of funds to the HTC account, and thereafter,
HTC issues checks to whatever taxing authority is owed money.
The former Comptroller, I I, has alleged that
Armstrong diverted lump sum payments to his own use and
thereafter, incurred penalties associated with late payments and
7(: passed these costs along to the client companies who were not
notified of the late charges. In essence the allegation is that
Armstrong is running a "Ponzi scheme ll of considerable magnitude
Which requires increasing amounts of cash to keep the operat'on
going · J~ -3:1,:;"& -"
left HTC in Februar of 1991 and on 3

You will be kept apprised of pertinent developments.


NOT APPROPRIATE FOR DISSEMINATION TO THE PUBLIC

L.~S
Enclosure
1 - Mr. Jones 1 - Mr. OIHara
1 - Mr. Baker 1 - Mr. Esposito
1 - Mr. Potts 1 - Special Assistants, CIn
1 - Mr. Bryant
GDM:gdm/sw (9)

(JA~
-.
-'"'1-3018 (Rev. 11-15-83)

196A-SF-93255 Sub C

Continuation oCFO-30J of J.... I - - - - - - - - - - - - - , On 4/3/91 I P alae --=;;;=:3=-_

In June of 1989, ARMSTRONG provided financial


statements. This particular financial statement showed the
"hole ll but didn't show any newer hole but also a note from
DRESDNER to fill the hole up. ARMSTRONG didn't even want any
Hamilton Taft financial statement to be given out to anyone.
ARMSTRONG also did not want anyone to know that Hamilton Taft
only had a networth of $500,000. Hamilton Taft, according to
I I was not a registered investment advisor. At this point
in time, the interview was concluded. .
Law OffIces Of DI:N15T mCE MARK C WHATUY HOilACF L NASH cnlAR r",nllR
HO..•.."I(DN N~ .... ERDV5);1 klLHAI(DC !ACOllS IlARIIARA A WINTf~~ sneLl-... I )l;IM
IlJCllAI(DW CA'IAOY Al.AlIoW ~rARU PAULINE E CALA~lIE Rtllll.MT II lOWE

HOWARD A JAMES 1lO1lER19JN II


JEI(OME 11 FALX.JA
JlAYMO"IO I HAAS
THI:RESE M STEWART
C;!IARLE;<; r ORTh.il:nR
rETEIiCOHIl.
EMIL A UEIN
MAliC A Z£!'l'EThLO
IlON'<IE C RQ;~
EilIC 5 IVALlns
A-.r>ETIE L IllJ~'T
UIRl<;TOrllClI E NNDQLJIST
JlODEI\T E (,OOPING )1l
RICE
STUARTS LIJTroN ~A'I[)1lA b t.t"I(IN~ON ElIL.AUI.T11 II IVAJ\.C
IoI.\IlTINRCLlCK ); "REP. STEVE\lSON WII.LIAMJ LAHlillN IrNNIIl'R l ~l AClOolAt.I
UoWRENCE 1l IIAlll:lt\ t../,l.IITllA K ct.NNINCltAI.I "".NA C 5HII«1.:0 llllS L IIHI"IM.DJ:.2
STEVEN l- MAYlin CHARI.OTTE r.c ~All.CN

NEMEROVSKl J"'\lE~L LOPI:!.


PlRI'M 5CHCN~'"
THOMASA LAIISFJI,.
T/M01HY 5 McCA!'oN
JANET A HUON
DElINAliDA BUR):.
I\ENNlmlA "lE"I.F
JOHN M UoWLOll
r l;EIl:.Q 5Al:AMmo
rAUL It RlXEIl5
ClICo'<nJtI
IlFNItYW HOW"J:D
WILLIAM T mrrm'l
O\NADY MllHAELQ I:J.C"At.
STEVEN a;: !iCHON
lCe-INErnl" tIAUr,MAN
LAl.Jl\I:NCEF I'l.lGIl.AM
lTllAII. l' 5OiUUotA'"
D01"olltDS SCHEllEII
~CHAilD'" MARL"'~NlO
CAll L L BWM E1.STElN
IUJUEIlT S IlODEN
'< RICltARO$MIT;i
IIOUEflT H MNL'OI:IN
';'dmlllr::! In H... ~Dll

ROBERTSON OONALOFMI1.!S
ROBEIIT R NIELSVl
Ii JOSEPH e>:1I£ll1ll
Et.L~N K lAZARUS
\!ARYL t!Ull'"..aN
I",!'JETL EVANS
ALAN M KOSOIIK
IOltN E ElUiHORST
ANNEE MUDGE

&FALK J,UZABI:TIi S SAt VESOH


H "'''THFW MOOIlE
rf:IT!lJ BllSCtl
~O"'Al-Otl <;TAk
I E5lIE A IIUnON
JiEUN C CONROY
TODD E nlOl.lr--..oN
HOWARD LAS"""
C~UAIl i10WLAND
I(A fHRYN lot NELSON
5oll.flttnJ Caltfrmlll1
610 NEWPORT CENrER DRIVE
HEl-\NE L MORRISON CAVlO A BA nOR
D4NJEI.I \VIM/lICE M PATRICIA THAYC; ROaEllT A llROO,;5
SU1TE 1045
A ProfessIOnal CorporatIon WILUAMM Dam
JEffRI:'l'L SCHAFnR
LINDA A MABRY
CAROL R. llOMAN
scorTL OI'TiCAN
I'E'TER/AKAD
NEWPORT BEACH, CA 92660
UNDA 5OREr.SE!'. MARIA C rll.ACHIiR EllE... M COHEN 714/729-2290
LYN"r HAlIT GARY ~ C1JLLEN DIANAllEE TELECOPIER 714/729 2297
THREE EMBARCADERO CENTER
SEVE1'.rrH FLOOR
SAN FRANCISCO, CA 94111 April 5, 1991
415/434-1600
TELECOPIER 415/399-3041

I~F~e-d~e-r-a~l~~B-u-r-e-a-u---ofI
Investigation
450 Golden Gate Avenue
San Francisco, California 94102
nearl..... __
Enclosed please find affidavits b~~~__~~~ _
b'7C I IWith respect to losses their firms
~s-u~f~f~e-r-e~d~a~t~t~h-e~h~a-n-d~s-of Hamilton Taft & Co. Please let me
know if you have any questions.
Ve

LFP:bem
Enclosures

b7C ~I
b7C
DECLARATION OF[ ----------
I,I~------------~I am the Vice Presldent and Comptroller
of Blue Cross and Blue Shleld of Texas, Inc. Except where
ind~cated, the matters set forth below are known to me
personally, and ~f called as a witness I could testlfy
competently to them.

1. I am fam~llar with and have examined Blue Cross and


Blue Shleld of Texas' records of deposlts made to Hamllton
Taft & Company from July I, 1990 to the present for the
purpose of funding Hamilton Taftls payment of Blue Cross and
Blue Shield of Texas, Inc.'s federal payroll tax
obllgatl0ns. I have correlated these deposlt records to (1)
tax payments purportedly made by Hamllton Taft for Blue
Cross and Blue Shleld of Texas, Inc. accordlng to records
(conslsting of coples of purported federal tax deposlt
recelpts) which that company recently provlded to us, and
(2) to records of tax payments actually received by the
Internal Revenue Servlce accordlng to transcrlpts WhlCh the
IRS has recently furnlshed to us.

2. My reVlew of these records reveals that Harnllton


Taft has failed to pay Qutstandlng federal tax obllgations
of Blue Cross and Blue Sh1eld of Texas, Inc. totaillng at
least $1,142,228.82, notwithstandlng that Blue Cross and
Blue Shleld of Texas, Inc. had timely deposited funds wlth
Hamilton Taft sufflcient to pay these obligatlons. In
additlon, the records reveal that Hamllton Taft falled to
pay certain other federal payroll tax obllgatlons of Blue
Cross and Blue Shleld of Texas, Inc. on a tlrnely basls,
notwlthstanding that Blue Cross and Blue Shleld of Texas,
Inc. had timely deposited funds wlth Haml1ton Taft for this
purpose. Whlle those obllgations appear to have been paid
eventually, thelr late payment by Hamllton Taft has or wl11
result ln the assessment of late penaltles and lnterest
charges by the Internal Revenue Servlce of at least
$107,527.85 and perhaps as much as $240,000.00.

I declare under penalty of perJury under the laws of


the State of Callfornla that the state of Californla that
the foregolng 1S true and correct.

Executed March 29, 1991, ~n Rlchardson, Texas.


AprilS, 1991

certified No. P-483 917 955


Mr. Mohamed A. Hadid
1300 North 17th street
suite ll00
Rosslyn, VA 22209

Re: September 11, 1990, Promissory Note in the principal amount


of $6,500,000 from Mohamed A. Hadid (Maker) to The Remington
Companies, Inc. (Payee) and guaranteed by Mary Butler Hadid
(the "Indebtedness tt )

Dear Mr. Hadid:

You are hereby notified that the above captioned Indebtedness


was due and payable on March 1, 1991, in accord with its terms.
Said note is now in default.

Demand is hereby made for immediate payment of $6,142,473.08.


This demand amount is comprised of the following:

Principal $5,796,300.00
Accrued Interest to 3/1/91 242,220.55
Default Interest through 4/5/91 103,952.53

In accord with the terms of the Indebtedness, accrued interest


was calculated at prime commercial rate at First National Bank of
Chicago, which was 9.5% from 1/1/90 through 1/31/91 and 9%
thereafter, plus 2%. Interest on unpaid balances after 3/1/91 is
calculated at 18%. Until paid, the above principal and accrued
interest is accruing default interest at the rate of 18% on unpaid
balances, which is presently $2,977.90 per day.

Should payment of all amounts due and owing not be received


within five (5) days from your receipt of this demand letter, The

\)e.,---ro EXHI 81T ':tM.


ELAINE SAMS

3811 TURTLE CREEK: BoULEVARD· SUITE 1100. DALlAS, TEXAS 75219. 214n60-6060. FAX 214f760-6851 W~ I (.... tf/I'-t( ~
-2-

Remington companies, Inc. shall institute such legal action as


necessary to recover all sums owing, plus costs of collection and
enforcement, including attorney fees, without further notice.

This demand letter is provided as a courtesy and does not


constitute a modification or waiver in any way on the part of The
Remington Companies, Inc. to the maker1s, surety's, endorser's and
guarantor's prior waivers of demand for payment presentations for
payment, notices of intention to accelerate maturity, notices of
acceleration of maturity, protests, and notices to protest under
the Promissory Note comprising the Indebtedness.

Very truly yours,

Le~Y
Connie C. Armstrong, Jr.
Chairman of the Board

C:\~50\HADID\AEOOS
April 5, 1.991

Certified No. P-483 9~7 947 Certified No. P-483 917 948
Newfield Enterprises Aspen Enterprises
International International, Inc.
2029 century Park East 2029 Century Park East
suite 2920 suite 2920
Los Angeles, CA 90067 Los Ange1.es, CA 90067
certified No. P-~83 917 946 certi~ied No. P-483 9L7 949
Aspen Financings LiJnited D C OVernight, Inc.
2029 century Park East c/o: R. Scott Caulkins
suite 2920 Cohen, Getting, Alper & Dunham
Los Angeles, CA 90067 2200 Wi1.son Boulevard
8th Floor
certified No. P-~B3 917 945 Arlington, VA 22201
N Y OVernight, Inc.
c/o: R. Scott Caulkins Certified No. P-483 917 950
Cohen, Getting, AJ.per & Dunham. 1001, Inc.
2200 Wilson Boulevard 1300 North 17th street
8th Floor suite 1100
Arlington, VA 22201 Rosslyn, VA 22209

Certified No. P-483 917 944 Certified No. P-483 917 951
Cornelius J., Sullivan Hadid Development companies
227 West Monroe street 1300 North 17th street
Chicago, IL 60603 suite 1100
Rosslyn, VA 22209
certified No. P-483 917 953
His Excellency Sheikh Abdulaziz certified No. P-483 917 952
Bin Ibrahim Al-Ibrahim Saudi International Design
AI-Anwae Est. and construction, Ltd.
P. o. Box: c/o: Hadid Development Companies
Riyadh, Saudi Arabia 1300 North 17th street
suite 1100
Rosslyn, VA 22209

Re: Security Interests - The Remington Companies, Inc.jMohamed A.


Hadid

Gentlemen:

Please be advised that under a September l~, 1990, security


Agreement, Mr. Mohamed A. Hadid and his wife, Mary Butler Hadid,
graI1.ted to The Remington companies, Inc. ("Remington") a security

3811 TURTLE CREEK. BoULEVARD- SUITE 1100 .. DALLAS. TEXAS 75219· 2141760-6060. FAX 2141760-6851
-2-

interest in 59 enterprises in which they held stock or partnership


interest (Exhibit "AII attached hereto - the "Collateral II ) • The
security interests were granted to secure payment and performance
of a certain promissory note dated September 1.J., 1.990, from Mohamed
A. Hadid to Remington in the original principal sum of $6,5QO,OOO,
which with attendant interest is now due and payable to Remington.

It is the understanding and belief of Remington that the


addressees are or m.ay be currently engaged in litigation concerning
certain of the collateral identified on Exhibit nAil hereto in which
Remington has been granted a security interest.

Please be further advised that until the September 1.1, 1990,


note is satisfied, Remington claims a right to all proceeds or
other sums to which the Hadids may become entitled by virtue of the
Collateral. Additionally, Remington has been granted the right to
demand, sue for, collect, compromise, or settle any matter or
dispute relating to the Col.lateral. as Remington may deem necessary,
advisable or desirable.

In accord with the rights granted to Remington, Remington


demands that (i) no settlement be undertaken in litigation
involving Remington's collateral interests, and (ii) no payments
be made to the Hadid's or their assignees or designees relating to
the above identified Col.lateral without the prior approval of
Remington.

connie C. Armstrong, Jr.


Chairman of the Board
Attachment

cc: Mohamed A. Hadid


Mary Butler Hadid
1300 North 17th street
suite 1100
Rosslyn, VA 22209
C:\Y?50\HADIO\AGO07
EOllJiIT A
PA.~ 1 OF 3

'&~D ~. RADID, et al
~em ; 4 - own~rship Interests

Entity P~rcentage
Entity and Address Type Inte~ast Int&rast.
----_ ........ ---.
.001, INC. S President ~oo.oot

.JOO RESTARUANT .ASSOCUTES, INC. C Presid~nt. 6S.00%


.365 L .. P. p Gen~a 1 Pa.rtnar 2.00\
Limited Partner 97.00%
,620 HIG, INC .. C Praaidcant J.OO.OO%
620, INC. C prasidant 100.00t
6TH & L S~ L.P. p Limited Partn~r 9S.00:t
500 Laasburq Pike A~moc P Limited Partner···· 9B.OOt
500 LEESBURG PJ:KE, J:nc C President 100.00%
DE: LIMITED PAR'rNEItSIn:1? p G.n~ral partner 1.00t
Limited PeItnar 98.00t
Ii HA LIMI~D PARTNERSHI: I? P General partner 69.00t
C OVERNIGHT I :INC. C NONE O.oot
OVERNIGR~ PAR~NERS, LP P Gen~ral Pertner 97.00%
(Hadid Rene)
OCt INC. S President J.OO .. OO%

:<:Eet:.rrIVE OFFICE C~ER, L. 'P. p L11Uited Partner 49.00%


l\LCON REAL ESTATE:, me & s NONE a.oot
T\.LCON ENT~ES I..P. p Limi t~d Partner ~7.00t

ADID ASPEN HOLDINGS, INC. C Pre.sident lOO.OOt


]WID D.EVELOl?MENT CORPOR. S Presid«:int 100.00t
!\DID HOLD:I:NQS, INC. .(SHAREHOLDER c Presiden't:. SO.OO~
~LCQN. REAL )zSTATE, J:NC.)

~nID HOOS~N HOLDINGS, INC. s Pre.t;ident J.OO.OO1C


~DID INVES'l'MENT GROUP c President 100 .. 00%
~DID LAND DEVEI.OPMENT' c Pre.sident 94.00%
\D10 R.C.D.C., INC. s Preside.nt 70.00%
~ID R.C.N.~., INC. s President 7S.00~

~DID SOUTffi~EST RESORT ASSOC. L.P. p LimitQd Partner


EXllIBI.T A
PAGE 2 OF 3

JHAMED A. RADID, et al
.tem # 4 - oYnerahip Interests
.--~~-~------~~~~~--~~--~~~------

Entity Percentage
Interest"
Entity and Address Type Intarast
-_...... -.._-~ ... - ..
lA.DID SOUTHWEST RESORTS, INC. c President lOO.OOt

rOTEL ASSISTANCE GROUP S president:. 51 .. 00%

~ROPOLITAN CONSTRUCTION S CEO 100 .. 00%

fEW 1UXI:NGTON PARTNERS p Partner{Hadid Holding 33.00t


Houston, Inc.)
fEW ROCKVILLE TOWN CENTER PARTNERS p Nona 0.00%

fY OVEIi.NIGHT me . S None o.oa~

ri OVERNIGHT PARTNERS, L.P. p Gene.rnl partner J..OO%


(fladid RCNY)
?RQPERTIES DEVELOPMENT CORPORATION S O.OO~

~TATJRANT DEVELOPMENT CORP. C p=~eiidant J.oo.OO%

~OCKVILLE REAL ESTATE CORP c Preaident 94.00%

1CKVILLE TOWN CENTER HOTEL, LTD .. P G&ncral partner 2.00%


L.United P&.rtn~r 90.00t

;jAVANAli L.P. p Limited Partner 19.00%

rrRGINIA AMERICAN PROPERTIES~ INC .. C None O.oot


t?G DEVELOPMENT ASSOC p Limited Partne.r _ O... 40t

~G DEVELOPMENT INC. C :Pr~&:ident lOO .. "Oot

E:IADID AVIATION c Pra~ident 100.00%

HADJ:D CONSTRUCTION CORPORATION

HZG ~~ACTURING, INC, c Pre&id~nt lOO.Oot

METROPOLITAN AVIATION c Pre~ident 50.00%

RESTAURANT MANAGERS, INC. c Pr~gidant 100.00%

SPRINGHILL JOINT VENTURE p Limited Partner 99.oot


1620 L ST L.? p Limited Partner 98 .. 00%

SAUDI ~NTERN/L DES & CONST1N C 0.00%

CODEL I1~ST¥~NTS c 0.00%

10~ NEW YORK AVENUE ASSOC_L.P. p Limited PartnGr


EXIIIJlIT A
FAGE 3 OF 3

~D A. P~ID, et al
:em # 4 - Ownership Interests
.~~~~----------~-----~--~~------

Entit:.y Paroentago
Type Inter~&t :I:ntereat
.... _--- ......-
....... ........ __ ...............--_.............. ....-
Entity and Address
._-----_ ......-~ -... ~
.-.-

P .LiInited 44.00%
~~2 NEW YORK AVE. ASSOC L.P. J..OO%
Genaral
p
~ENSBORO HlUGHTS L.P.
President 100.00%
:\OVE S~ CORPORAIl'XON C
Limited pa.rtner 49.00%
RO"lE STREET LnUnD PARTNERSHIP P
Limited partner 49.00t
A.."'D:IJI'ON A.SSOCJ:ATES L .. l? P
l?rtiSii ident lOO.OOt
1\H!:IJrON ~LOINGt INC. C
None 0.00%
ERNOON GRANO BUJ:LD'!NG L.P.. P
Nona 0.00%
CERNDoN CiXANO BUZLDrnG PARTNERSHIP P .
prttcident 100.00%
CEmroON GRAND, INC _ S
MARl:. 0 I'rliATUY flORACE L NASI! CEU,> ~ TA~LOR
Law OffIces Of DEN151" Hln
~OWAHD N NI"IEI:0'0'5l'l IllCIIARDC /ACOns O'\~DAllAA WJNlEIl> ~HLLAII.:)M

R1CHAROW CA">lADV ALAN IV 5rAIlEll r... L UNE E CAl.ANI1~ "OUEArs LOWE


A JAMIiS ll.OD[RTStlN II THElSEU STEIVAIlT ERICA KlllN nlc<; W4LTEllS

HOWARD luor-lE B FAUl. Ill.


RJl.YIolOND P HAAS
;,omrr 1 COODING )11
CHARI f<; r rurrM EY Ell.
rfHIlCOHN
mJAIlTS UrTOr.
MARC'" ZErrl:TELlD
!lONNmc- I!.Q5I;
5A~OAA E M.d'I~NON
ANNfTTF I tiUlb,
L 1t~15,orHO E NonDQU1:IT
I:I.IU<OCiH II W"'-'IG

l'lCE MAI{TJN R CLIO:


lAWR.E~CE:e RAB!:IN
Si£VENL MA\'ER
KAREN STEVENSCN
MAHI/A): CUM>lI~("HA~1
CltA Fa.DTTE M ~"'lor.
WILLlA"'] LAFFFliTY
Ar..NAC 5H1M){O
KE'lNITIIA '1EAlE
jl:./l,NIFER L aLACKMAN
LUIS L IIERNA ~DEZ

NEMEROVSKI /AMbl LOrES


Olkl:M SCHEM:ICAN
THOMA!> A I..'IRSE/Io
TIM O11IY S MrC.\t-N
IANETA NOON
BEi~RDA DUll~
JOHNM
r
LAWl.O~
KE1){l)SAKAMDTO
PAULR /lOCEIlS
IUCIIAllO A MAliCAtr.n"OIO
QJCt'Ll'l:>-r1
tllNR¥ IV HOWARD
WILLLAMT IWITON
N AICHAno SMrrH

CANADY MIUI ... lLQ [.;.(;AN


srFVEN E sellON
KEN'ZETH G. HAUSMAN
I AUI\£I"CE F rULGIlAM
l1TILAP. r SCHUMAN
DONAlDS SCHERER
ell III L OW M E'JSTElN
ROUEltTS RODEN
aOOERT H MNCO~IN
N,'"
AJm'rtl'd In ~nri
AtANM 1'.Q!",(JIlK
ROBERTSON DONALD F 1.111 F.5
IlODEIlT R NIELSEN
H JOSErl1 tsCllEJ: III
lllz.o.eFnl <; SAlV~
ELLYN K lAZARUS
M...RY L HUD50N
JANlTL EVANS
I fSUE A IIURlUN
JDIt!'. E EIC HI tOllST
A"I'OEE MLTtX;f
HOWARDl.AS~-Y 511111h~m C{/1J!OrtlW
&FALK. H MAnlEW\IOOIlE
t'ETER / m..,SCII
RO"IAl.OH STAll
HELENe CONROY
TOODE THOM1"SON
!lELANE L MORRISON
CYIlrrHLA R 1I0WUND
IJliHRYN Itt N:l.50'-
DA~'tDA lIAYLDIl
610 NEWPORT CENTER ORJVE
SUITE 1045
DANIELl WINNlKE M PATIIlOAnlAYEIl JL03EJIT A lIROOI':5
WILLIAMM llOYD UNOAA MADRY saJrrlOI'TICAN NEWPORT BEACH, CA 92660
A ProfesslOl1al Corporation JEFFREY L SCHAfTElt CARDI R IIOMAN rEiERJ~D
714/729-2290
LINDA SOIlEN!.EN MARIA C r1tI\CI-IEIl El..l.£NM COIIF"
LYN'oI r IIART C;"'RYS("L~ DIJI~... L UE TELECOPIER 714/729-2297
THREE EMBARCADERO CENTER
SEVENTH FLOOR
SAN FRANOSCO, CA 94111
4l5/434-1600 April 10, 1991
TELECOPIER 415/399-3041

special Agent
Federal Bureau of Investigation
450 Golden Gate Avenue, 6th Floor
San Francisco, CA 94102
DeaJ ...I

Enclosed please find the or1ginal signed


declaration of Shirley starkey documenting the losses
America West Airlines, Inc. has suffered as a result of
Hamilton-Taft's conduct.

DMS:dej
Enclosure
--

DECLARATION O~~ ~ b7C

I, I I
of Payroll Taxes and
Account1ng of Amer1ca West A1r11nes, Inc. Except where indicated,
the matters set forth below are known to me personally, and if
called as a witness I could testify competently to them.

1. I am famJ.liar with and have examined America l'lest I s


records of deposits made to Harn11ton Taft and Company from July 1,
1990 to the present for the purpose of funding Hamilton Taft's
payment of America West's payroll tax obligations. I have
correlated these deposit records to (1) tax payments purportedly
made by Hamil ton Taft for America West according to records
(consisting of copies of purported federal tax deposit receipts)
which Hamilton Taft recently provided to us, and (2) to records of
tax payments actually received by the Internal Revenue service
according to transcripts which the IRS has recently furnished to
us. state and local deposits have been verbally confirmed with
appropriate regulatory agencies.

2. My review of these records reveals that Hamilton Taft has


failed to pay outstanding tax obligations of America West totaling
at least $759,326.85, notwithstanding that the company had timely
deposited funds with Hamilton Taft sufficient to pay these
liabilities. (I do understand, however, that some $236,407.40 of
the funds America West deposited with Hamilton Taft remains in a
trustee account for the benef it of America west.) In addi tion,
these records reveal that Hamilton Taft failed to pay a federal tax
obligation of the company in a timely fashion, notwithstanding that
the company had timely deposited funds with Hamilton Taft for this
purpose.. While that obligation apparently was paJ.d eventually I its
late payment by Hamilton Taft has resulted in the assessment of
late penalties and interest charges by the Internal Revenue Service
which I calculate will exceed $109,027.60.

I declare under penalty of perjury under the laws of the state


of California that the forego~ng is true and correct.

Executed this 5th day of Anril 1991 in Tempe. ArtzQua,

- - - -- -- - - 1... - '- - - .....

Subscribed and sworn before me


this th day of APR./L , 1991.
b7C
PUBLIC NOTARY in d for th~ st~te
of Arizona, res2ding in Mesa.
My commission expires May 31, 1991.
"1-3028 (Rev. 11-15-83)

196A-SF-93255

4/15/91 , Pa llC _ _2_ _


-------- ,On

cash account for that day. If an overage, the money would go to


Hamilton Management for investing. If short, he would ask
Hamilton Management to wt~re money into the account to cover
checks written that day. _ lassumed all the trouble was
started when ARMSTRONG instructed one of these guys to send money
to somewhere else or he had the money from Kansas go to one of
his companies in Dallas for investment. "No, I don't consider
his ranch a real investment".

After the interviewing agents gavel la copy of


the sUbpoena for HT records, I 'said "I have been down a
similar shopping list as yours. lI • He thought a chunk of client
money was taken out and used for investments. Probably a verbal
order by ARMSTRONG. This money replaced later. HT replaced
Federal Express money with Federal Express payments. HT did not
use "Joe Blow's" money to pay Federal Express's taxes and
penalties. Every tax that is owed in last quarter has been paid. ""1n

I Istated is about 90 million short this quarter


that HT b. ! ....
because the clients are not putting money into the company. 4
I lexpressed that everything the trustee is
doing will help your investigation. IIHe's doing your work. I am
concerned that you guys will come in here and take all the
records away.. We will not see them for years." He had that
happen before in another case dealing with meat inspectors
getting kickbacks.
I Idiscussed he had worked for his family/s
company which had filed bankruptcy. He had successfully
reorganized the company. He had went on to work for other
companies in trouble. He decided to start consulting on his own.
That is when he answered the HT ad.

When questioned again about his contact with ARMSTRONG


he explained most of his contact was in bUdget meetings.He said
ARMSTRONG was planning to double the volume of business. There
was a summary of the meeting minutes kept by a secretary but he
was not sure which secretary.
When asked what was ARMSTRONG's long term plans
I~--------~replied he did not know much about ARMSTRONG/s goals.
"I've been trying to do what you guys are doing. If I I
stated "I know a lot of peripheral facts, but not any detail".
I Idid say that ARMSTRONG went overseas to establish
r::D-301a (Rev. 11-15-83)

196A-SF-93255

Continuation ofFD-302 of ~l... ...J----------' On 4/15/91 . Page _3_

I
Hamilton gaft International
Jsaw the bUdget that_
ae
d make SOme sorf of deal.
. prepared for
ARMSTRONG. The bUdget indicated that some $50 million dollars of
capital was to be introduced back into HT this month and
eventually catch up all the delinquent taxes due by October of
this year.
b7C
I Ibelieves what' Istated in his written
statement about the actions of the client response unit is a lie.
He was managin; tn~! unit. The intent was not to mislead ~
clients. r _ ~hO was the supervisor in that
department weu d verIfy the unit's intent.
~

I Ilast contact with ARMSTRONG was last friday


at the HT office in San Francisco. l Istated,IIWe all met
here. It; The trustee with three others and ARMSTRONG with his
attorneys. He explained that he was trying to salvage the
business. He had another meeting later with employees. A sort
of pep talk asking them not to believe the newspapers.

I Iproduced a list of all current employees to


the interviewing agents upon the agents request. Since the
produced copy was missing the last digit of the employee's
telephone numbers another copy was sent vis facsimile to Federal
Bureau of Investigation office later the same day.
FD-302 (REV. 3-10-82)

- 1. -
FEDERAL BUREAU OF INVESTIGATION

Date of tran5cription 4/17/91

~~~~~n~~~~_·M·~Smade due to the reason that an


officer 0 TAFT CO stated that monies were being
transferre ILTON MANAGEMENT INC. to ARMSTRONG
companies. It had been implied that ARMSTRONG is not directly
involved with HAMILTON MANAGEMENT INC ..

Investigation on 4/17 /91 at San Francisco, CaliforniCfile # 196A-SF-93255

by SA Willard L. Hatcher, Jr. nate dictated 4/17/91

This document contains neither recommendations nor conclusions of tbe FBI. [t is the property of the PBI and. it loaned. to your agency;
it and Its contents Irc not to be distributed Qutslde your agenoy.
r

, ...

f.....
I.ti.-
I

SPEAR STREET TOWER. SAN FRANCISCO. CALIFORNIA 94105; MAIL FRAUD; .....
~
, I

FRAUD BY WIRE (A); TAX FRAUD; 00: SAN FRANCISCO.

RE SAN FRANCISCO TELETYPE TO DALLAS, MARCH 23, 1991.

FOR INFORMATION OF SAN FRANCISCO, A TEXAS CRIMINAL HISTORY ,r

DONE ON CONNIE C. ARMSTRONG. JR. REVEALS TWO ARRESTS AT MCKINNEY, II


....
TEXAS, COLLIN COUNTY. COLLIN COUNTY IS A COUNTY LOCATED NORTH
:) AND ADJACENT TO DALLAS COUNTY. ARRESTS UNDER COLLIN COUNTY
III
'(

"
r.
,.I --- .... ~.' J". 'i tJ~ 1
c
.
..-
"T P ' C
I
'~
\GE TWO DE FBIDL 0003 UNCLAS
In
~dE~IFF#S
4
OFFICE - 150013, DESCRIBED AS FOLLOWS:
o
JUL1~3. 1985 - THEFT OVER $750 - 2 COUNTS
\
THEFT OF SERVICE - 2 COUNTS
II
,
,I
AUGUST 27, 1985 - THEFT OVER $200

)
tEXAS DHV CHECKS SHOW FOLLOWING ADDRESSES FOR ARMSTRONG:

3811 TURTLE CREEK


-Itt'-
l

DALLAS, TEXAS
"1 "".'"
l

RT. 6. BOX 240

TYLER. TEXAS
II
) R.T. 6~ BOX 240A

TYLER~_,

ttt-
.~

BUSINESSES THAT ARMSTRONG IS SHOWN AS BEING ASSOCIATED WITH ~~


11

-N TEXAS ARE AS FOLLOWS. r'


"-
CAL-PACIFIC MANAGEMENT CORP.
,~ ·.[)RESDNER ENTERPRISES. INC.I
C
...,til
, •

DRESDNER MORTGAGE J
r-
t
."J
t ....
,1 .rfl
t
DRESDNER PROPERTY MANAGEMENT
) r
CHASE DEVELOPMENT CORP. -

SUISSE TEXAS, INC.


~.-:,.,.
...
ALL OF THE ABOVE BUSINESSES ARE LOCATED AT THE FOLLOWING
) ...
(
ADDRESS:
rtl
~ f ",-

\,

I "
J n
f! J"
J
,#
I,

- (
.
c t
..........

'AGE THREE DE FBIDL 0003 UNCLAS


lit ~
'I
381~~TURTLE CREEK BLVD.)
./
SUITE 1100 ~

DAL-bAS, TEXAS 75219 ~

io

II BUSIN~SSES LISTED UNDER ARMSTRONG, CONNIE C,) ARE AS


) ~
L-i
FOLLOW S:

AUT 0 MA L L , INC.
,....
....1

, ARMSTRONG MORTGAGE CORPORATION Itt..... ,


,I ~
LOCATED AT:

) P. O. BOX 126 1-

II PLANO J TEU S
) r.....
INFORMATION OBTAINED FROM THE SECRETARY OF STATE IN TEXAS:

'"
'"
AUTO MALL kWrt-ARMSTRONG MORTGAGE CORPORATION
·t
CORPORATE CHARTERS - ,...
fit
~
"\
WERE FORFEDTED ON DECEMBER 5, 1988.
DALLAS COULD LOCATE NO BANKRUPTCY FILING UNDER #85681 OR
- I
........

) U~~ER THE ~~ME OF CONNIE C. ARMSTRONG. JR. FOR INFORMATION OF -...


fl SA~·;IA~CISCO. #85681 IS NOT COMPATIBLE WITH THE BANKRUPTCY COURT
..-l
"\
~
..J
NUMBERING SYSTEM. ,.~

~DIA
,
COVER4GE REGARDING ARMSTRONG HAS BEEN FURNISHED TO SAN
~- C
FRANC I seo. ~If
r-
...
DALLAS CONSIDERS THIS MATTER Rue.

BT -
.....
ttl 10003 1'1
".
'1
-' ...
r-
,
"V

J . I~
1,Il ,.
..
(

NNNN
....
(
ttr---
)
~

FD-302 (REV. 3-10-82)

- 1 -

FEDERAL BUREAU OF INVESTIGATION

Date of transcriptiDn 4/24/91

telephone
number agent via telephone
in San Francisco. of the identity of the
interviewing agent and the purpose of the interview.
provided the following information:
I b'7C

ARMSTRONG himself visited Parker Automotive in Costa


Mesa (right outside of Los Angeles) in January of 1991.
ARMSTRONG represented himself to Parker Board of Directors as a
reputable businessman who owned the Remington companies Inc. with
3 billion in annual gross revenue and over 600 employees through
it's 22 subsidiaries around the country. Negotiations between
Parker Automotive and ARMSTRONG went on for a month. It seemed
that ARMSTRONG was taking more personal control of Remington and
I I was not in charge. I Iquit Remington not to long
after these meetings.
Parker board of directors voted in January of 1991 to
allow Remington Companies purchase a $3 million subordinated
convertible debenture from Parker. This debenture was secured by
Parker Automotive stock which was being held as collateral for a
Parker Automotive's debt. with the $3 million dollars, Remington
companies paid off a $600 thousand dollar note due to a leasing
company controlled by the former president of Parker Automotive,
$1 million to Home Bank in Signal Hill california, and $1.4

Investigation Dn 4/23/91 at San Francisco, California:ue' 196A-SF-93255

by SA Willard L. Hatcher, Jr. Date dictated 4/24/91


----------
This document contains neither rccommendat1olu nor conclullonl of the PBI. It is the property or tbm PBI and. blDaned to your agency;
It and its contents arc: not to be d.istributed outside your agency.
----------- .'---'--'--' -------------------
FtJ-30i (R:EV. 3-10-82)

- 1 -

FEDERAL BUREAU OF INVESTIGATION

Dale of transcription 4/30/91

On the afternoon of r-A~r:.:i:.:l:.......;;3;.",&""................-...oIoot-~~ ~.....


was contacted by telephone at The purpose of
this contact was to attempt to locate with regard to
his former employment at Hamilton Taf an Company in San
Francisco. The writer identified himself to the individual who
stated that his name was ~ I This individual advised
that he resided at I I
California, 94625.
___________T~h~e~ writer explained why the FBI wished to speak with
______________1 He thereafter provided the following information:
He stated that b he

or var~ous brokerage f rms including~ ~~~_~_

r:
a:vised bj met CONNIE ARMSTRONG at the
California, in late 1988 or early 989.
a v1sed th~t be met !¥MSTRONG through anel
l~lC~ in
:
W1th
1
respect tal Jemployment with Ham11ton~~~~~~~~~~
that h . , .
as the in San
Francisco. He stated that he left in In JQDDeC:jQ~
with his daily dutt'es, he advised that he would be told
I .
at Hamilton Taft on a daily b a s i s . e sal.
j :=
that some of the funds that would be coming into Hamilton Taft (~
from various clients were for tax obligations that were not due ~.
for up to 90 to 120 days. I ladvised that the clients
funds were never the firm's money and that it was not uncommon. to
invest anywhere from 20 to 100 million dollars for three or four
days in overnight government re-purchases. He advised that at
the time he was with Hamilton Taft, the brokerage firms of Smith
Barney, Shearson Leahman, Prudential Securities as well as Bear
stearns were utilized for various investment accounts. He
mentioned that there was 100 million to 105 million dollar
deposits in treasury securities maintained at Hamilton Taft while
~~~~~~ere as an extra measure of safet to the firm's clients.

Investigation on ---..:4~/...::3~/......:9::..:1=- al San Francisco, CaliforniCFile fI 196A-SF-93255 Sub C -- c-

by ~~~~~~~~~~~~~~~~b~-·~lC~~~~~~Date~ctated~~~4~~~3~~~9~1~~~~ ~~
This document containa neither recommendations nor conclusions of the PBI. It iJ the property of the FBI Ind is loantd to your agency:
it and its conlents are not to be distributed Dutside your agency.
196A-SF-93255 (Sub C)

CONFIDENTIAL SOURCE (CS), telephoned Special Agent


Willard L. Hatcher, Jr. at San Francisco Federal Bureau of
Investigation office 5/13/91. CS was contacted by someone
claiming to be from the San Francisco Chronicle newspaper. CS
told the reporter he/she had no comment about the HAMILTON TAFT
COMPANY (HT). The reporter asked CS if he/she was aware of the b7C
statements filed in federal court. cs stated he/she had no
comment. b7D
FD-36 (Rev 8-29-85)

FBI
TRANSMIT VIA: PRECEDENCE: CLASSIFICATION:
o Teletype o Immediate o TOP SECRET
o Facsimile o Priority o SECRET
}{] AIRTEL o Routine o CONFIDENTIAL
o UNCLAS EFT 0
o UNCLAS
Date 5/15/91

1 TO : SAC, SAN FRANCISCO (196-SF-9 3255)

2 FROM : SAC, DALLAS (196-SF-93255) (RUC)


3 SUBJECT : (CHANGED)
CONNIE C. ARMSTRONG JR. AKA
.4 HAMILTON TAFT AND COMPANY
5
ONE MARKET PLAZA, SUITE 3200
SPEAR STREET TOWER
6 SAN FRANCISCO, CA 94105
MAIL FRAUD, FBW (A), TAX FRAUD
7 OO:SAN FRANCISCO
8
Enclosed are seven executed Grand Jury Subpoenas
9 that were issued in the Northern District of California.

11

12
13

14
15
16

17

18 ~
" - San Francisco (Enclosures 7)~
19 - Dallas
DKS/elks
20 1.
21 GRAND JURY MATERIAl·DISSEMINA fE ONLY
.PURSUANT TO RULE 6(e)t Fed. R. Crim, P.

c-~-~ Approved: ~J k""


I ' \
Transmitted
(Number)
FD-302 (REV. 3-10-8J)

- 1 -
FEDERAL BUREAU OF INVESTIGATION

Date of transcription 5/23/91

r--------w-----I date of birth I I telephone


number I I came to the S~n FraDci~co Federal Bureau of
Investigation office voluntarily. L Jwas advised of the
interviewi10 agents' identity and of the purpose of the
interview. _ Igave the following information:
I
Ihas a bachelors of arts deg:ej in economics b7C
from univers1ty o~ california-Davis. specialty is I :
computer systems analyst and programmer of m~ -range IEM computer
systems. I lis a hourly wage employee of International
computer Consulting (ICC). ICC pays I la hourly wage and
then billj the. contracted customer a higher hourly amount for
I. servJ.ces.
__~~~Ito
start with HAMILTON TAFT
Iworked withl I
5/1/90. [
HT employees, 1n the Management
Information System MIS department which developed the tax
processing system for the AS 400 IBM computer which was
physically located in Dallas, Texas. [ ~thought MIS ha~a
crazy rUle; The rule was as follows, programmers would not be
allowed to talk to the current software users and share or
compare information. He even called ICC and complained about the
rule. ~ Itold ICC, IfI'II sit here and take their money, but
this is crazy".
,
While at HTf Idesigned the system to process tax
liabilities of the 12~O tax1ng authorities nationwide on the IBM
AS 400 system. r
Jalso wrote the computerized date calendar
for 20 differenl states going forward 90 years.
Even though he was not authorized,1 ~examined the
old natapoint (Databus computer software to see how the old
system worked. ran test data off the old system into
the AS 400 to prove w th the right software the data from the old
system could be down loaded right into the AS40Q system without
key punching the data allover again. I
I I admPllished I :::Itor using the ~o~l~d~d~a~t~a-.-Ir---""'I~a""!"n~d---...J
I (insisted thatL Idevelop a system where HT would

lnvestiiDtion on --=5;.L1...=2:.:3:..l/:...;9:;.;1=-- at San Francisco, Californi~i1e /J 196A-SF-93255 - :21


SA Willard L. Hatcher, Jr. ~f b7C £de
bY~ I 1f nate dictated. _ _~5"'-1_2_3....s./_9_1_-_ _

This d.ocument contains neither recommendations nor concludoR. 01 the FBI. It is the property of the FB[ and is loaned to your agency;
it nnd its contents are not to be diltributcd outside your lacncy.
°-30211 (Rev. 11-15-83)

196A-SF-93255

Conti.n.uation oIFD-302 01 ~..... I_b_7_C ,On 5/23/91 , Page 2


---~

key pun~h all tb~ client ledger data rather than copying the data
over asl ~anted.

~ bos;'t;'on
:1s Vice President of MIS. Even
thoughL-- =:=:infyrmed h'f that the AS 400 system
would not be ready un ~ m~ -199 nsisted that the system
will be ready by year end 1990. understood that the plan
was for HT to convert over to the new system January 1, 1991, so
HT management did not have programmers prepare the old Databus
software (RT computer) for 1991 calendar. In early 1991 HT fired
all the programmers familiar with the old Databus or IBM RT
software. b7C

I
Isaid thatr----lwas fired as VP~~~~
meeting the company deadlin~nuary of 1991.
board sho after that as an independent contra~c~o-r~.~~~~
undertaken duties when he quit in December 0
I lunderstood that resigned in February of 1991
because he was being as gn his name to something he didn't
like. He seemed very paranoid at that time.
I

of MIS. Since HT h:d laid 0


system MAY and I _.
as
Bssumed temporary command of the MIS department
and communicated to AL MAY (president) that the RT system would
not be able to sustain curren
modifications. MAY then gave
without a lot of
the additional duty of VP
ne familiar with the old
lbad
concentrate on getting the
AS 400 system opera lanai.

HT had programmers in Dallas and San Francisco working


on the AS 400 system in March 1991. HT had programmers fly in
from Dallas to have I I and other contracted
programmers share all their kn~Jedqe of t~e system with the
Dallas programmers. Meanwhile,L J(VP of marketing) was
telling customers that HT was now fUlly automated. That is they
could send their liability data straight to HT mainframe computer
via modem. This was not true so HT had to set up personal
computers with modems to capture and print out the data as it was
received from Scott Paper Inc and the Jim Beam company. Those
were the only two companies to take advantage of the offer.

On 3/15/91 the Wall street Journal article was


pUblished. I Iheard that by 9:00 am 4 or 5 clients were in
the lobby insisting on seeing audited financial statements.

' - - - ' --.,.- ----'''--- -_._--"._,-_._--,',-------------


""1"J-302a (Rev. 11-15-83)

196A-SF-93255

Conlinuatlon oCFD-301 of --I1 1


., -b7C ' On 5/23/91 , Page 3
~---

I ptated the information in the article was not a surprise


to most of the HT employees.) Ihad heard rumors of non-
payment of client tax liabi11ties as early as July 1990. He
assumed the money was being properly invested and since the
industry was unregulated it was legal.
b7C
When asked about the c arac the HT employees
I lprovided the following. a nice guy when
once as~ed about missing monies 0 "I haven't seen
anything and I'm not looking for it ll • tated that he and
~still good friends. ~nd cated thatl
\ ~was . I but a CONNIE ARMSTRONG, JR. r1-g""r'fi"""l€---
~h-a-n"""ld~m-a-n-"'.-"'~H~e-said San FranCiscWund July 1990 and
moved to Dallas. Then returned when quit in December
of 1990. l Isaid was waiting for 15 house to be
completed in Dallas.
that in February of 19911
:t!J!§.....I.u~;L.;~I.:..~Wl(;t-".c.c:.a.JUl.la--AI:lL.-:I:J1 ~~ijti ve" saw (L._ _- - - - - - - - -
in his office one niaht
~u~s~1~n~g~c~o~c~a~~~n~e-.-"":!:T~e~y~~w~e~r I I
...e-f:="'~""'r~e~d~t~h-e~n-e.....
xt week.
and I ~ere outside programmers (consultants).

----.-._---_._------
•- ...... 'If •

A-4 Monday, June 3, 1991 *• •


-

SAN FRAN ~

Judge ca1~ls tax firm .- '.

case 'b~ggest scam ~


himself $2.4 million in cash and
Hamilton Taft Co. invest millions more in oil and gas
deals, real estate, a helicopter and
put in bankruptcy luxury cars.
Armstrong, 37, declared bank-
By Seth Rosenfeld ruptcy in 1985 and supported him-
OF THE EXAMINER STAFF _self mainly by.workil1g AS a fire-
A federal bankruptcy Judge says
fighter - until he acquired Taft
former Texas firefighter Connie for no money through a suit
Charle9 "ChipH Armstrong Jr.'s a.I~ against its former owners for miB-
leged diversion of millions in chent management.
funds from his San FrunciHco tax Taft, at One Market Plaza, pro-
processing firm is the Ubiggest cessed some $3 billion a year in
scam" he has seen in 25 years. employee withholding taxes for
U.S. Bankrnptcy Judg~ LJoyd about 100 major corporations until
King in San Francisco on Friday King ordered it shut early in May.
overruled objections by Arm~ Clients forwarded funds each pay-
strong's attorneys and ordered day to Taft, which was supposed to
Hamilton Taft and Co. into bank- send them to various tax agencies.
ruptcy. Taft usually charged no fee, but
uThis is the biggest scam and I was allowed to invest the funds for
misappropriation I have seen in 25 the few days before they were due
years of bankruptcy work," said and keep the interest.
King, referring to Armstrong's di- Armstrong's lawyers argued
version of $76.5 million from Taft that he merely had invested client
to support his jet-set lifestyle aIld funds according to contract, but
busineBS deals. King said believing their explana- The City's unofficial,ark on t~
King's ordercomes after hear- tiona ·'would require II lDonumen- -
Jh~,

secre
ing months of evidence, and final- tal suspension of disbelief."
izes a March roling placing Taft in
preliminary Chapter 11 bankrupt- The bankruptA:y order was re- "
cy status. It allows court-appointed quested by Federal Express and
trustee Frederick S. Wyle to con- Stanford University HOBpital t two
of the 88 former clients who lost
tinue to control the firm md at-
tempt recovery of its assets. tax funds. Taft owes Federal Ex- Pier 98 awaits
press $30.4 million and the hospital
Wyle reported this week that his
investigation showed Armstrong $3.5 million, Wyle said.
Port action to
had used Taft funds to buy a $10
million ranch and home, pay $6.1
The FBI and IRS are probing
the matter but have not filed char-
qualify as park
million to a business partner) pay ges against Taft or Armstrong. By Gerald D. Adama
EXAMINER UR&AN PLANNING M\ITER

Wedged between cargo c r


San.leu . __ ("16) 777-1850 and smokestacks on San Fral
Waah1n,ton ...._ (202) 298-a920 co's southern waterfront, a 10*1
9110 WFORMATlOH alnlo~t secret refue:e of .. few fi.~
~-- ....

HAMILTON TAFT & COMPANY


Payroll Tax Penalties Paid
• •
(6/13/91 - W/Jerry Klemberg & Cindy Crowe)

1 Zlba Aflak provided Jerry K1emberg with a file regarding penalties paid The
first document In this file was the photocopy of a check paying a payroll tax
penally. This check was dated m Apn124. 1990

2 In discussing this matter with Cmdy Crowe. she described gettmg Involved In a
prolect to reclassify payroll tax penalties. Her mvolvement was CIrca Apnl
1990

Apparently. prior to this timet HTC had held checks wntten for the payment of
payroll taxes. When HTC received a penalty notice. HTC paid both the payroll
taxes and the penalties and Interest with one check wntten on the customer
Impound account This process Incorrectly clasSified the penalties and Interest
as a deduction to HTC's liability account for customer payroll taxes

AI May apparently Identified this procedure as bemg erroneous and directed


Cmdy Crowe to reclassify the penalties and associated mterest that had been
Incorrectly classified as reductions to the lJablllty for customer payroll taxes

As a baSIS. Cmdy was provided a list of replacement checks dated from 12/26/89
through 5102190 for her study Jerry Kllneberg has Identified several verSions
of thiS list but the latest reVISion lists check #1002-99213 shOWing the above
listed date range

3 In earlier diSCUSSions with Peat Marwlck. they IndIcated that one reason why they
had not been able to complete the 1989 financial statements was because the client
ledger could not be reconCiled to the liability account for client payroll taxes.

4 After Apnl1990 t Jerry Kleinberg believes that HTC then followed the practice of
paying penaltles and Interest separate from overdue payrpll taxes It IS thiS
procedure that was In place when he became Involved with HTC operations

5 In diSCUSSing thiS matter. Jerry also received from Romy a three page list of checks
for client payroll taxes that apparently had been held These checks appear to be
dated an August 1989 Jerry Will reconCile these checks for payroll taxes to the
other lists of penalties and Interest paid

\
'lI
~ .
O{\~· ,
£~ed: t DatE!' T.lZC!5 Total ClIent Nale
-------
11112 12/:6199 1.22 oel:76.~B 99 1 316.3B A.enta West
1181 12129/89 e.BS 414,017.1B 414.217.10 Tandel
11!4 12n6/S? e.sa 427 , 157.61 427 .lS~.61 Intel Corp
1811 1~I2B/S9 175.sc;S.11 4J :U.92 179;~BB.02 Texis Oll I Gas Corp .
~
1191 21!19/98 JI~,)1.~4 2S2.~9 B.U4.B3 Valley Fig Growers
1B92 11I89/9B 15,&16.89 2,279.96 18,995.95 Cygna ConsultIng EngIneerIng
~a93 Il/a919B ;,U4.b~ ~lq.b9 9,74~.32 ENSR Corporatlon
l1B~ el.'~ZnB 11 •.!Ie2.11 821.59 22,489,73 CceaniC Con5truction Inc.
H~! 11'f=!1j3 :S9.'il2 9.9B 268.E2 Oceanlc Propertles lnc.
~~a2 ~111~/ge ~.';51.;7 lJ:~a.~a 9,~9~,87 Oceanic Lelsures Inc.
~:2~ iH/~:,'~a :,:3i.4i1 431.19 3,51b.~7 OAHU Transport Ce.
1111 all!7/1B 'l.- "0:"' 01;.
J-Jl~"'C. - 6.:)18.78 173,7S7.Jt3 EW-IP Internatl0nal Inc.
:~1:
, 0
J. ••
H":7!':Z
tl/l:t~a
.. -..
-L ,"", •.,
_WIL.4' "0
..
'" ""'
..... ,.,t:","£.
9Q4.QS
:.~2t.:;
27.~2:.4b
!22,7n.~7
~1111anl
~ygna
TDftn Inc.
Energy 3ervlces
.. .,.
!::s
u ... .L
n"la/~?
~lJ~E"o~
2.~~S.:~;,a2
q~;.~S2.~7
~a.nj' .3S
:~,el:.19
:,.445.:96, JB
967.:95.36
5 ~ S Credlt Co., Inc.
Blue Cress l Blue Shle~d
:111 ll.'la:~0 1.~6S,:~;.~3 ~4.:16.6a l,:2 Q,i23.b8 Volule Shoe Corporat~Dn
:12~ a~:lDj'JB S2@.~a~.'2 t9,1~9.Bl 51QJ~~9.~1 ~1111al Marsh Rlce UnlY.
.. 1lIIl.
•.l_" all:6JCl~ ~3~.:j;.!::i :1~19.i7 ~ji,76~.7B ~ec~ltt ~ Collan
!l:S all!BlqQ ~i.!3b.:j ~,;4'j.a9 59,15B.~6 Rochester Inst::ute o~ Tech
~~26 al.'la:;~ li.~:~raL aB8.ja 18.541.32 Cire.anar HDs~ltal ~ashlnqtGn
1127 ~~,16"?i Bj .. ~o.3S ~77.a7 B,H5.12 Berland Feod Pantry
1113 ~1::9/°i! :ot~4S •.a !tU~.;:;5 ::;a I :i51. 51 RKO tieneral Inc.
113: U:12/98 ~:.:6~.79 a3~.~4 25J.:~e.13 Lanu Co. Inc.
1::;2 ali lana 13t:8~.:B 4S1.~a 13,755.46 Source S2rYlr::~s
a~~ \ 1~'lq/q~ :1,~q;.o'i 1,~7i.n 19.3nA2 Core~nlt HOs~ltal af G~lQ
lH4 UIlQ/'i3 ~.~17.56 46a,a9 :;17B6.~5 RODt-LQ~ell "fg
U!S a:/BJ;l 1.~q3. 77
....
~
L..,v.,
~o
1,827.:6 NDrthland Plastlr::s, Inc.
H~6 3~/:1:~~ 6.coa.b5 :47 .bi 7,114.34 KDch 5ystels Corp
:137 a:::jl1~ 71~6i.:~ ~n.~6 7.o~a.U Bruns~lck Seat CQ;
~r~a aVl~/c;a 2,'41.39 &15.72 J.~57.11 Al :en FOal :or p
11'39 ill:9na !S,:.L6.H ~14.71 18,72~.U "cnrDe Systels fDr Buslness
llU 2.:nI12 1~.57a.jS 1,6a0.65 .13.471.J5 Verbatll ~Dr~oratlcn
114: @1I~qI9B :i'J~cs.a: 1,121.81 3a J669.66 Kerr Co.pany
IH2 !1I19/~a ~o,~:B.19 .1,385.37 3B)323.56 D&alcnd Walnut orowers
110'3 81,19/;8 17.1i;.59 1.SB:1.S9 48,183.11 Sun-"ud arawers
1H4 .::n/~! !~e.:~3.5& 5,=S5.96 14;),559.52 NEt Electronlcs, Inc.
a.~ 8%/1«1/°8 ~e~.681 a4 '.B4e.:b .:.B9,728.19 Self Chulca!s
1146 JlJ19Pl8 2~,~~~.~S 1.!~7.ai 27,644.82 Wacdbrldge INnAC I Ir.c.
IH7 a1l19/0; 12.~i4.~~ 462.73 12,567.37 Rlverslde Seat Co
lHE ;~:l1;:la ~1,~U.a2 1.S21.31 49,464.33 Noodbrldge CDr~Drat~cn
1149 3U:9/U 61.~~;.~5 2,~4S.:7 63,i7B.B~ SheaHer 1 Inc._
1151 all~i/l;" 445.564.56 17,3:&.17 462,791.53 Coherent, Int.
1151 a!/19Jli~ 26.!1i.1b 998.43 27,116.39 VIntage Club
:152 ~1':T/::I2 ~2:,.::.44 :,7~a.:~ 129,!~B.A7 Spr.ngfleld Terllnal ~all"a1
11~~ e1l19J~~ 85,629.12 3,273.4S 9S 1 9B2.57 Dn-Llne Business Systems
115-4 al/19/~8 ~li1C7.J2 1,191.76 32.338.92 ActIon InstrUlents Co,-
1155 11I19/9f 3S,9U •.l2 1,~e.U ';;/,219.51 Del Manufacturing -....I ,.,.
1156 .1!!~/98 186.:64.£: 4.259.47 ~1St222.BB 6erland's rODd FaIr
....'_ _ '_'A'_~
........
t IC-
a~.·:~J~B 4:t:a~.~; :,6:9.:~ 44.:21.~!I Eerl~,~'s Realty, ~nCa
usa 11/1'i/'i1 2b l ~a2t 77 1.1:1.51 29.!14.28 Nellin-H1rtus &rcup
-
!
'"

'.

11~9 S1119/9B 4lZ,477 ,7~ lS.76B.~B 4~a,2~6.B4 tantlnentil oraphiCS CQrp


1169 91119/99 219,257.47 g,~91.23 227,639.38 fteasurex SystelS
116~ QlI19/9a 35'3.332.B7 13,Si6.1S ~66,Ba9.e2 Keasuru Corp
l1b2 BIJ19/9B ~,2~4.72 B5.5~ 2,328.:4 "easur~1 Inter~atlDna&
116:1 611~919B 133,6".93 S,US.17 IJa,731.~8 ABC ;tarket Corp
1164 811~9/9B 18,9B2.63 722.61 19.625.21 H.~. Hudson Kanufacturlng
1165 U/19/VB 5,6J6.47 3S1.42 C:,tU7.39 J E E FaD~~, Int.
!166 21119/9~ BB.:22.21 !1 ,683.56 92,2Q2.51 Srinklann instruaents
iU7 81119/98 7,m~B.a6 269.13 7,3B9.19 5CH Metal Prccccts
ab8 a1/1~f9B 565,751.85 21,627.67 5a7s~7a.n Bal cer Payroll
1169 BlI19/9a l6~,~55.54 17.1.&7.68 48:,BB:L~= :hronlcle °ubl1shlrg Ca.
~17Q B1J19/qJ ~~415:;2.q4 21,b97.~B 546.:20.:" ENSR ~DrporatlDn )ela.are
1179 e1l221~8 g9,:19.SL 5,:S4.':1 15~"I~~.9j Aler~tan "ItrD Systels
USB U/22H0 1::;8,~b7.n 5,Jml.iJ2 H3,lbB.7& !..ucilsTll. I~~.
HB! 81122199 4:s,al~.a9 1.1-'3.91 H,:6LSS "easurex Autc.atl~n ;V5te~s
1132 !1I221~0 5i,~bl.:1 1.5::.17 5S,SQJ.~8 Stir~~ng ?Clr.~. :~C.
as:; 81/22199 :~.;j3e.:l 14 .6;1.~: 68 .lU. S3 NPhS. !nc.
1185 B!l22lqa :97,.;74.67 38.172. BZ: :27,c£;.Sa 6ens:ar Stone ~ro~u=:s
!lEb ;11::/98 72,!~6.71 1,932.:': 7£,:9,.42 Hetrolledu C:J.
1187 31122/°0 :~.1~5.i'a 1, :1!!. 77 5.1,334.55 ~ta~ la ~orp.
Haa UI2219B ~tBJ3'L44 2.~B :63,3tL.l~ Rcss Stores, ire.
~189 ~1I221qB '3!,142.T~ ~t:9a.S4 32,:j~.':8 ~Q5 t~Ylrcn.enti: ;ysteJs
1198 ~1I121QB 5 993.2e
1 ~44.~2 6.~27 42 ~ ~ 5 "a·~et~ :nc.
::91 ~1J1:/90 331.883.;2 11.Sola.49 :n,~24.H ~aDcnl ~ugenl , CD
1192 ~1I221qa 1£.113.18 376.97 :4 ,~9B.15 ~BO &CD of GeorgiA
!H~ ~112219S !J:57.~1 82.43 :1.4!9.59 Slyw.lk~r Dev2100lent :0
11'14 81/22/9S HB,435.3~ 1B,laa.26 16a,a23.~9 Custoler CClpan~
1195 g1l2219B 7,11b. 9b 1,B11.2! 9.138.17 Careunlt ~llnlt ~f «a5hlnglon
11°6 81/22199 e,17~.a2 2i6.7S 2.4~e.57 Tout de :ulte Cater~r.;
l~H ill 22199 19,9&4.92 ~ge.~2 1Z.~~4.;4 Arundel ~sphalt rroducts
119B ml/22190 5i,121.1~ l,illB.S~ ~8.e3-4.1a De;ussc C~rp
1199 91/22/90 1:6.911.34 3.~aq.91 Ij0.331.2S Alerlcan C.ncer SDcIety
12ilB mll2U93 94.221.30 :.:~j.a, 861 47a.6a Tandel Teleco•• unlcatlo~
!2B1 U/~2!9~ 34)676.~1 92b.2~ :5.~a2.:4 C~rtex :or~
1~02 61122/9g 28,798.39 555.~4 21 1353.93 WoodbrIdge real Fabr.catlng
~~S3 01J2~/99 4,126.06 IB~.B7 J,2B9.73 ASSOCIated :oln ~Iuselent Co
12B5 at/22/liS ~0BJ91S.B~ SJ4b9.~1 214,3B4.:1 ullvett~ Advanced Tech
1236 lU/22Jlia 819,'386.39 31,36LQ4 251.7&8.33 Pac.11c PresbyterIin Aedl:al Cen~er
12B7 01/22/99 4:I,692.4:5 l,67iL28 45,~62.71 SunSMeet 6ra~er5 Inc.
12BB a1l2U9B 2,9BS.a6 436.:'6 3,421.a2 05S :lnannal
1211 UI2319a 39,476.49 5,775.29 45,,51.78 Waialua S~gar to.
1212 all2J/qa 311,251.26 -46 sSn.BS JS7,761.26 Castlt • Cooke Inc.
!213 81123/9i 189,144.Q3 29,771.32 217 ,916.2~ "to DlabLe HOspltal
1214 UJ23/9B 53)B16.63 7,913.22 £1,689.85 al1d Antle Inc.
1215 81123/98 47,386.57 6,996.83 5~t212.6a Da:e ABPIK, Inc.
1216 81123199 135 1197.39 19,77B.i9 lS~,97b.29 ~~lSE tclpany
12~6 811ZS/9B 46,S49.S4 8.BB 46,542.54 Nualuli Sugar
1227 UIZ5/9S 2B316a~.69 a.~e ~8j)b~L6fJ ~a$tle , Cc~ke
1228 91125/9'1 !41,1B2.79 I.es 141,192.iB Sud Ante! Inc.
1229
~238
1231
.""''''91\
21124/9Z
B1124ne
Sl/24/9i
~BB,491.1b
~a4Ja47.a1
75,427.5a
5B,e5a.~a
~1,195.11
2,aa~.';b
~a,S49.1b
~35124:.1::
7B,~11.a4
SDrlngiiRld Sugar , ~r~d
The PUlllan tOlpan~
Ene Scanhht
- ".

..... ,-,-""-,,-,~
... L.)4. B!I2&/~a 133,1~9.6a ~.~~ 132,929.62 Sony t~r~ ~f Aler~cQ
12n 911261l?B 43,91.1.21 6,J37.oB ~B,l~2.a1 Aipldate :nterr,atl~na:
!
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r
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1-:27 i~/221ge 1,~ES,5B5.36 e.ee 11~E~,~a~.3o ABF Freight Systel


nu e::lslq~ l.e~ HB.!~ :!e.13 ~t DlabJo Uosp~tal
:~7r e::r'i ,"t ~.ee 26.H 26,1~ DBS Flnant.al Servlces
j::7E: i~I1~/l;r !.es c.7~ 6.74 Oceanic tcnstru:tion
1.....,..
.1" t:;l~/QC l.lr ~.&£ 53.b4 TDut De Suite Catfrln~
1~7e l:/13/9r E.eS 1111.74 611. 7~ Alalla Corp
J37~ l :!/lj/ge !.I! 2:3.36 e~:.36 "etro~e~ii Company
1~Se
w

~~/~3/9! !7 13Sf.97 !.8f 17.~5~.~7 !:lty 01 Plncle- 'I


1~9r 2ll'2e/'if 2.e~ 723.91 72!.9! Ka:h SYStet5 Carp
Hil - !2J2eJ9~ e.tE 4h,91~.e7 ~c.9j2.87 Ccherer.t lnc.
1422 e:/2i /9P l.er 23,'93.49 2:,!9~.49 "~asurer. Sy5tei~
1~2:: C:!2ef9i 2.'2 S:.7~ 82.75 Castle &: tD~ke
H~~ ~2/2e/r;t £.er H,~5~.6: HtS5~ .6: NEC ElectroniCS In:.
!~r~ t:f1e'Q2 f.~~ H,E~~ . 57 1~,Bl~.57 ABC M,arket Corp
HN, e:l2t'if ~.B~ 1E.n~.3e 1E,4~L:se If!),as 011 l Gas
Hei ~: 2B'92 e.u a·:.~·~ Ib2.5£ ~r t Cc cf 6eorgla
:t~ .. r::::'Q~ r.n :le~~.U 1,r:C.6~ ~e~ussc Corp
:l.~t ~:,':~lIii C,@~ £~ • .!lE.71 ~:.~lE.71 Contlnental Srap~lCs
:u: r:":~/qi 2.6~ ~~.~~:.4E l~,lB~.~E ty;n~ En~rgy Ser~lte~
:~5£ r~ '~~ 'l;'£ £.se 5~S.11 5B~.1: A5SDclate~ Celf Alusecent
... ,.
1'1:,
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Itt-
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1'':'
",'t 2:'1~!~~ t.sr ~t999. 7i: :,~9~.76 ~.L. HudsDn Manu1atturlng
!~~~ 2::::/9~ 2..8C :.i7~.b; ~,712.bF Del r.inufacturlnq Cc
;.t5e e:tl:/9~ £.S~ ~,6~:t~~ ~.6t9.~3 HaD ~ CD of 6eDrglc
··r.. .
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.'le-,,:. r:j':3';l ~.B~ ~1~F.4t ~.~C;.~~ VerbGtl~ torpDratlo n
~l~C r:::~!9f £#~~ :.7H.17 :J74~.27 Y.lntage Clut
i~H B1f~~'9i e.e2 1:.90LB~ ~:,q'i1.81 S~rlngfleld ler.lna~ Rallway
"
••:1_ . ~2!:~192 C.~C
;:.re
~t.r.7~.le lO,f'9.le . Alerltan Canter SOciety
jJ o: £212:;/91 S: .ZIj].2f ~~ .2;7.2£ Chronl:lt Puhllsblng to
Hb: t:,'=~'9t t.B~ 5t.M:.2~ 5~J6~:.7~ Gllllil Harsb RIce UnlV
l~t!' 22.'::/9i e,se :5,~7~.Bt 1~,57~.a6 Ret~ltt ~ Collan, Inc.
Hb~ ~: :::/9E e.m~ ~~2'~.2~ :;.2B4.2~ LAa'Dn~ ~alnu~ Sro"er~
~4b: ~::::\/9C ~.e~ ~ ,~1~ .~~ ~,~!~.b~ Op-~lne Buslness Systef~
H7~ C~"~:'9£ e.6~ l..fn';.n, ~,;7:.75 Sun-pt.ud Growers
:nt ~:!lP9, £.e~ :.U:'.e2 2,11:.C2 tarelanar Hasplta: Df ~a~h
:~-1 l::t1U9£ c.e£ 7q~.U 79fj.4~ Brun'~ltl Seat to
~:j~ s; 1:~,'9f t.!~ ~ ,:7C.JS ~,~7~.IS RlvefslDf Seat CD
ll.j~ t~,'26/ge e.Bi 5.;lS.lt ~.Cl~.~b "QDdbndgE' Corp
j:~rl £::~ii'qr ~.a~ :,Q2l,o:' ~.1j2e.c2 ~er" CQloany
~~E{ r:'iE/9~ f.U ~:,tc ~.a6 "AIA!.U~ SUGAR
.......
J-1t 2:/~~·tj£ ~.8£ 1~.'3~ H.~~ BUD Al:TLE
~~~tj r:,'2VC;Z t.ti ~6.~17 .7lJ ~€,217 .79 ROSS STORES INC
~t~7 e:/~t'lt£ :.B~ Qo.8bL63 q".Bi1.6:) BLUE CROSS ~ BLUE SHIELD
:C ~~/tV9C f.ee 1~.12~.e: 11,125.25 IRS
e:/eb:9~ 1.12 :,S£e.2, 2, BU/2S' flr..£HAN MARCUS EJ\01JP
S::/cCl.'9r l.e2 t..~6b.!i' t.t~66.~7 SHAfER INC
~:!H.'qi !.~l a~,6E~.71 61.,6&3.71 PACIFIC PRESB\iERIAN MEDICAL
JI fJ,'ec / ge e.er 55,~ll.8e S5,2H.ee £RSI\ r:aRt'. IlRAWARE
3~
3e
37
e3'~:,/92
f~/ib '~r
r.~fh/9t
2.112
t.1e
f.le
1l,4.b2
1,521.15
S~.Be
«194.62
2,521.15
58.SS
ENSR CORP. DELAWARE
WOODBRIDGE FOA~ FABRICATING-
,...
SDS ENYIRDNKENTAl ENcIN. DIV. INC.
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.. B3Jf7/ge e.BB 37,189.78 37,lB9.7B rtEASUSR7 CORP.
39
"f If3127 192 B.ee 928.75 92e.7~ CUSTDt'IR CO••
~1 ej/B7/9~ e.se 11<,52e.88 IH,5BB.ee VD~UKE SHDE'CORP.
rz e3J~7J9f e.i! 4,625.61 4,625.61 SUNSWEEi GROWERS I~:.
u U/ei1ge £.82 92'.31 924.31 VALLEY FIe GROWERS
·H B3/!jI9~ e.n 6.212.6e 6f 212.60 ATAllAtCDRP.
4S f~Jt7J9f t.e! 9,8U.22 9,Bu.22 lAtina TElEI:O~~~lt~1~nHS
~b 83/~B/9a m.n 3t 27B.2m 3,279.28 SOS ENVIROHKENTAl EHQ1N. DIV.
0 !3/85J96 8.1~ ~,276.67 3,278.67 AcnOK INSTRwt£HTS co. INC.
V9S27 1l~/nJge I.Bf 5.S0 5.Bt - ~MERJCAN NEST ~IR~IN!5 IN:.
99B2B £3/l3/92 e.ts ~1,B25.16 :U,B25.16 "ABO~ NUSEHT , co.
9T~~4 2~/H/9~ e.se 7,9ge.15 7.992.15 ERIE SCIE~1IFIC to.
q9t35 e=/l~/92 e.e~ ~,lB5.75 5.1B5.75 DCEANIC PROPERTIES IKC.
qQUl, e~IH/9i r ~.@e 2IB~2.7~ 2J8~:L.75 wo~nBRl~S~ IHC.
99~rT t3/15J9~ l.SE 1,7~q.B9 1,7~~.fq ~CNTINENT~~ SRAPH!~S CORP.
~9ltJ 2:/~e/9£ £.8~ ~.712. 71 2,;72.71" UNA1 r:.
q98~c ~312~/9~ t.s~ CJ,ge~.97 ~.991.117 5vy~ COf'(0AN\'
Q9CU e~J22/qr f,eB :,73c.2e :;.73e.2~ RKt ~£NER~t IN;:_
r;92E~ ".tJ2H9£ S.8~ 23,IU. CZ 2:,442.(: OlIVETTI ADVA~:ED T£CH~LDDY
q9B82 Sl 'e4J9~ i.e~ H.et3.U H,B0:;.4e :'VCASt'll" .
q96a~ ~"@~I9C ~.B~ l,7BE.t1 f,78E.t: STARTINE PDlNT
~9~B4 eH~.!/9r 2.0~ ~&2ei.e7 4,227.e7 CAR£UN1T HD5F:T~L Or OHIO
1J9~a5 ~Hf~!92 f.t~ 5B~.72 ·5BZ.72 CITY OF Plf:OlE
~~2Bb e~/M/9~ B.1Ie Bb0.6B B~e.6e TDlITE DE SUITE
9gee7 9He;'92 E.e~ ~,15~.78 ~J151.76 I1ILllANJ TOi:r..
Q90sr 0~/~~/~~ ~.a~ ~~£.17 U2.17 YOLl1"£ SHOE CD.
°ge9i' r..e~ ~Z2.2l 4n.21 PhCIFIC PRESS' KEDIC~L
q9t~3 G.0~ 2~7 ,qZ1.e~ 2~7,;Zl.e~ s~s ::R~n:T to.
~~~Jt £.0~ 741.£5 741.25 set. "!TAL PRonu~rs
~9.tA' ~VrJ/90 ~.B~ 63l.~: nl.U BLUE Ct.~SS, BLUE SHIElt
~;1~~ 0~12e.';( e.se 112S~.ii ~J204.77 ~DHRD£ SYSTEKE FOF BUSINESS
99155 ~4122'92 c.ze J.s~.er 3S1.sr r! & E KARI:ETS I~:.
~,16~ ~~/=3!9~ £.0~ HL21~.Bt 1.(t.eq~.B4 Asr FREI6~ SYSTEr.:
99161 0~'~~t92 ~.B~ ~.ql~.72 ~,912.n WAI~~UA SUgAR CO.
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------------ ~--_..._-_ .. _- -_ .. _---------


TOTA.. : 16, Sg. 7::.~~· ~.01:,:12.<B 19,6Bc.~e:.~!
:=====:====:::== ===1:======= ===r:=======::==

•• I
wi "

STANFORD UNlVERSI1Y HOSPITAL

June 20, 1991

Internal Revenue Service


Fresno Service Center
P.O. Box 12161, Stop 01
Fresno,CJ\ 93776

Attention; Joe Suttie

Dear Mr. Suttie:

Stanford University Hospital (the "Hospital'j) is a former client of Hamilton


Taft & Company (HTC) and is writing pursuant to the instructions set forth in your
letter of May 21, 1991, regarding abatement or non-assertion of late payroll tax
penalties.

The Hospital initially entered intO a contract with HTC to provide payroll tax
services on October 12, 1983. Copies of the initial contract and two subsequent
amendments dated October 11, 1985, and July 25, 1990, are attached as Exhibit A. ~
The Hospital selected HTC to provide payroll services because of its good ~
reputation and apparent substantiality and because it provided such services to a
large number of other large companies. UntiIlate January, 1991, the Hospital was
unaware of any problems with HTCs payroll tax services. Prior to that time, as far
as the Hospital knew, HTe had consistently performed its obligations and paid all
payroll t2Xes and filed all required tax returns on behalf of the Hospital in a timely
manner, and the Hospital had never received any notices of late depositS or late tax
returns from the IRS or any other taxing authority. The Hospital also never heard
of any problems experienced by other customers of me prior to 1991.

The Hospital first became aware that there might be a problem with its
federal tax deposits when it received a notice from the IRS dated January 23, 1991,
a ,copy of which is attached as Exhibit B. The notice stated that 'you may not have
made Federal tax deposits in sufficient amounts when due" for the third quarter of
1990. The Hospital immediately forwarded this notice to mc,
but did not hear
back from HTC before receiving a February 11, 1991, notice of penalty from the
IRS in the amount of 591,854.85, a copy of which is attached as Exhibit C. The

300 Pasteur Drive • Scanford. California 94J05


(-t 15) i23-+000
.
'

Internal Revenue
June 20, 1990
Page 2
ce

Hospital forwarded a copy of the notice to HTe and called HTC to ask for an
explanation. me said that the matter had been resolved with the IRS, and that
they (HTC) would send the Hospital copies of their correspondence to the IRS.
The Hospital did in fact receive copies of a letter and check from mc to the IRS
paying the penalty amount in full, copies of which are attached as Exhibit D.
Because HTe admitted its responsibility for the penalty and promptly paid the
penalty, the Hospital at this point did not believe there was any need to terminate
the relationship with me.
On or about March 8, 1991, the Hospital became aware of claims by former
HTC Controller Steve Solodoff that me was systematically defrauding its clients of
payroll tax payments. This information caused the Hospital to immediately request
tax deposit information from the State and Federal taxing authorities to determine
whether HTC had made timely tax deposits on behalf of the Hospital. That
information disclosed the following instances of late payments and non-payments
during the fourth quarter of 1990 and the first quarter of 1991:

October 8, 1990 Hospital transferred Sl,782,906.58 to


mc. HTe timely deposited 5% with
IRS, but deposited remaining 95%
(51,693,761.26) late, on January 31, 1991.

October 22, 1990 Hospital transferred Sl,731,918.55 to


HTe. I-ITC timely deposited 5% with
IRS, but deposited remaining 950/0
($1,645,322.61) late, on January 31, 1991.

January 14, 1991 Hospital transferred Sl,681.857.83 to


HTe. HTe timely deposited 5% with
ms but has never deposited the
remaining 95% (51,597,764.94).

February 11, 1991 Hospital transferred $1,755,490.49 to


HTC. me timely deposited 95% with
IRS but has never deposited the
remaining 5% (S87,774.53).
Internal Revenue
June 20, 1990
Page 3
ce

February 25, 1991 Hospital transferred Sl,715,667.17 to
me. lITe timely deposited 95 % with
IRS but never deposited the remaining
5% (S85,78335)~

March 11, 1991 Hospital transferred $1,741,399.50 to


HTC~ HTC has never deposited any of
this amount.

Upon learning of untimely performance and the fraud allegations against


HTe, the Hospital ceased using HTC's service. No further ta.x payments were made
through HTe after March 11, 1991. On March 19, 1991, the Hospital filed suit
against me in u.s. District Court in San Francisco for breach of contract and
other claims, and on March 20, 1991, the Hospital (together with two other
creditors) filed a petition in the U.S. Bankruptcy Court to place HTC in involuntary
bankruptcy. On March 25, 1991, the Hospital paid to the rn.s the full amount of the
deposit deficiencies for the first quarter of 1991 (referred to above), amounting to
$3,512~722.32. The Hospital has not been able to recover any of this amount from
HTC.

Set forth below for your convenience are responses to the six specific items
listed in your letter of May 21, 1991:

(a) Under the circumstances described above, the Hospital respectfully


submits that there was IIreasonable cause" for its failure to timely deposit federal
taxes in the fourth quarter of 1990 and the first quarter of 1991. The Hospital
believes that it exercised ordinary business care and prudence in retaining HTC to
provide payroll services. For over seven years, HTe performed those services in a
diligent manner without any instance of late payment of payroll taxes. Even when in
late January of 1991 the Hospital received notice of a late payment for the third
quarter of 1990, me promptly responded by paying the assessed penalty to the
IRS, and the Hospital therefore had no reason to believe that there was a bigger
problem with HTe. As soon as the Hospital learned of the allegations of fraudulent
activities by HTC in March of 1991, it immediately ceased using HTC, brought suit
against contacted the IRS concerning late tax deposits, and promptly paid those
I

late deposits.
· Internal Revenue
June 20, 1990
Page 4
Sera

(b) As described above, the Hospital became aware of a problem wi th a
late tax deposit for the third quarter of 1990 around January 23, 1991, and we
immediately contacted mc, which told us that the tax deposit bad been paid and
that HTC had paid the resulting penalty. The Hospital did not become aware of any
problem with late payments for the fourth quarter of 1990 or the first quarter of
1991 until after March 8., 1991, when the Hospital, on its own initiative, obtained
such information from the IRS. Upon learning of the problem at that time, the
Hospital terminated and filed suit against HTC and paid all late tax deposits.

(c) Copies of all correspondence and notices we received from the IRS
are contained in Exhibit C. Copies of all correspondence to or from HTe are
contained in Exhibit D.

Cd) Copies of the Hospital's contract with me and Form 2848, Power of
Attorney, granted to HTC are contained in Exhibit A.

(e) The Hospital has received no penalty assessments for the fourth
quarter of 1990 or the first quarter of 1991. The penalty for the late payment during
the third quaner of 1990 was paid by HTC and a copy of their check is contained in
Exhibit D.

(f) For additional information, please contact:

Roger A. Knobles
~'Ianager, General Accounting
200 Quarry Road
Stanford, CA 94305
Telephone: (415) 723-5864

Under penalty of perjury, I declare that,. to the best of my knowledge and


belief, the factS presented in this letter are true, correct and complete.

Sincerely,
.. r7
f rV:/,/i
j /.
;1.'_" ",'
";. ;' ;2")--.. ~"'--"""'--'::'
David L Sakai
Director of Finance
Enclosures
PAYROLL TAX SERVIC=

This Aoreement is made and entered into as of the Twelfth day of October
1983 by and between S ta:l(ord Univer"sity Hospital, a California corporation,
and Hamilton Taft f, Company, ("HAMILTON TAFT"), 567 Golden Gate
Avenue, San Francisco, California 9l.tl02, a California corporation.

WHEREAS, Stanford University Hospital desires to engage Hamilton Taft to


perform payroll tax services with respect to employees of Stanford University
and Hamilton Taft desires to iJerform such services;

NOW. THEREFOR~, in consideration of the mutual agreements set faith below,


the par"ties agree as follows:

DUTIES OF HArvilL TON TAFT: Durin~ the term of this Agree"ment, Hami[ton
Taft wilj (I) deposit required Federal, State and local withholding tax payments
for Stanfarc University Host)ital in the appropriate amounts (utj(i~ing IRS ll~afe
haven" provisions) and in a timely and proper manner (including payment by
check. where allowed) with the tax authorities on or before the payment dead-
lines; (2) Hamilton Ta:-t will prepare. transmit and file required federal, state
and local payroll tax forms and re~orts. These duties to be a condition prece-
dent to "DUTIE:S OF STANFORD UNiVERSITY HOSPITAL u (reimbursement of
Harr.ilton Taft by Stanford University Hospital).

DUTrES Or STANFORD UN~V=:RSI7Y HOSPITAL: During the term of this Agree-


ment, Stanford University nospi~al will (1) deljver to Hamilton Taft such documents
(including accurate automated payrol[ t2X summary information together with its
payroll tax registeiS) 25 are necessary to enable Hamilton Taft to carry out its
duties under the terms of this Agreement: (2) reimburse Hamilton Taft, via
Hamilton Tafrls De~os:tory Transfer Check no sooner and no later than 2
calencar days of the r=.I.T., F.I.C.A., and State tax cepository due dates,
in the amount of laD~ of federal anc: s~ate liabilities, and (3) reimburse
Hamil ton Ta ft, a t Sank of America l s ove~dra ft or uncol[ ected funds borrow ing
rate applied to Hamilton Taft as a result of an improper failure by Stanford
University Hospital to reimburse Hamilton Taft in a timely manner (or the tax
deposits made on S t.anford University HospitaPs behalf.

COMPENSATION 0;: HAMILTON TAFT: Compensation which Hamilton Taft


shall receive for performance of the duties described herein is that Hamil ton
Taft may retain whatever benefits may be derived from the temporary use of
any funes net collected immediately :,y the taxing authorities upon Hamilton
Taft's deposit of ~2yment on Stanfor::: University HosfJitaf's behalf on or before
the payme:nt deac:ines.

INDEMN1FICATION; Hamilton Taft shall indemnify, defend and hold Stanford


University Hospital harmless from and against any and all expenses. damages,
claims, suits, ac~ions, judgments ai1C costs, including attorney's fees, arising
out of Ham il ton T d ft l s fa ilure to perform the duties descr-ibed herein in a
timely a'nd proper manner.

FEES: HamHton Taft wifl charge Stanforc Univer-sity Hospital on the last
business cay of each month via De?ository Transfer check, $50.00 for each
Federal I.D. and S10.00 per month for each State in excess of one serviced.
Initiation fees will be a one time charge of Si 00.00 per- federal 1.0.

- I ./ . r A
t:::y. V\l Ol""7'"
1\
"TERM AND TERJ\·1INATION:

The tel"'m of this Agreement shalf begin an
oct"Ober 12, 1983 and continue indefinitely until term ina ted by either party
as provided below. Stanford University Hospital may terminate this Agreement
immediately if (1) Hamilton Taft fails to perform any of its obligations under the
terms of this Agieement; (2) a voluntary OJ involuntary petition for relief of
debtors Or" creditors is filed by or against Hamilton Taft; or" (3) Hamilton Taft
enters into or effects any plan or agreement with its creditors. Either Stanford
University Hospital or Hamilton Taft may terminate this Agreement without cause
upon 30 days' wl"'itten notice.

FIDELITY BOND: In order to protect Stanfol"'d University Hospital against


dishonesty or fra-ud by employees of Hamilton Taft. Hamilton Taft shall main-
tain during the term of th is Ag reement one or mOl-e fidelity bonds in aggreqa te
amounts equal to 520 million. As new customers are acquired by Hamilton Taft l

the amount of said fidelity bond shall be increased so that the percentage of
customer deposits piotectec by fidelity bonds remains adequate and constant.
Stanford University Hospital shall be entitled to 60 days' written notice {rom the
bonding companies of any cancellation of such fidelity bonds.

MISCELLANEOUS: This agreement constitutes the entire undet'standing between


Stanford Universi~y Hospital and Hamilton Taft and cannot be modified except'
by an agreement in writing signed by the parties. Upon execution of this
Agreement, this Agreement shall supersede all pr-ior negotiations, under-standings
and agieements. whethe~ oral Oi written. This Agreement may not be delegated
to persons who aloe not employees of Hamilton Taft. Any notice required to
be given shall be in writing. postage prepaid, by certified mail.

IN WITNESS WHERSOF, the parties herein have caused this Agreement to oe


executed on the date fiist above written.

ACCEPT£D"BY STANFORD ACCE?TED S Y HAfvlll TON TAFT


UNIVE~~PITAL
By:
I
&( L-LL0J2.~~J
v

8
y
_ J: _'" F /_~.:~. .,~.
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~
Title: Oirec:~r of :=-inance T i tJ e : /~u. ;.-:. ./..'-:--:. -=f-

A..~ENDf.'f.ENT TO P.;,YROLL .T~..x
.'
SERVICE AG?":::EMENT

."j'1-I
This ~~en~en~ is made anc entered into th~5 II day of)

October, 1985, for t~e ~u=?ose of modifying the Payroll T~~ Ser-

vics· Ag=eement dated 12 Oc~ober 1983 between S~anfard universi~y

Hospital, 300 Paste~= Drive, St~~fo=d, Cali=o=nia 943Q5 r and

Hamilton Tat~ and Com~any (nE;Y~L~ON ~F2TW), 567 Golden Gate Avenue,

San Fr~icisco, Cal~=ornia 94102, a Cali=a=nia C0r?0ration.

The charJ.ge s~2..11 be mace in "DUTIES OF STANFOP.D Ol-...L v-:=:P..s,ITY

EOSPIT_~LfI it-em two (2) which shall be amended to reac. -in its en-ti::-ety

Tr~~s=er C~eck no soo~e= and no la~e= ~hen one calancar


c.ay of ~he F ~ J: • T. t.? • I _C . F•• , a..1'1c.

cates, i~ the arno~~t of 100% of :ede=al a~d state liabil-

ities.

Exce?t tor ~~e c~2..~ge set a~ove, the Octobe= 12, 1983 Aq==eme~t

c:.
- __
continues in ei=ect , 1 t e::::::illS •.

By By

Title Ti t.ie dl
y

UJ 1m'
-----L.:E ~ I~"):'l
1.1 -'--
I~i~ . - ---.---
• FEOERAL./POWER OF ATTORNEY
ANO OECLARATION OF REPRESENTATIve

KNOW "l..L 5.fE'N !JY THESe PA£S£Nrs..:

nun "Tc\NfQR2 U'NT~n:'Bsr-rv \.tOSPTTAI ~QN P'90FT"r CQRP0!L·rrT Oec 9[,.-6114066


""-' ~----~-~~~ .,..,...,...c. ~
lQ.c:.2tedd 300 ?a.sc:eur Drive Palo Alto CatLf 94305 (415) 497 .. 5864
~~~ lCt91 ........ ~I ~

UUPt.1IIl CAt~ 'I'M ~~ '\112 m~. ~ ~ &I'd ~ aa4 b'r \M6It~. dcII'S~G\6aS. CM~ Mtd.~ ~ J'EM.£l. t:
r.t~~ H. 'AlVA 0'
"'~CI\ r..m " C::mo.t.ny. ~.'.a. 507 ~ G.4t............ M~ac;:;). c.a.u~ t-Ila:z..tta s.an
~ ~ tI:lDt U &tid IFa t1~
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Ar.l:I '.-Olri'~ ~ las W1tM1e14 .. ~ lI.Qf'IlI W1IIQ'n

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hot ~ Ul'I.q lWfI"l:Onty la t'I\.e ~"'O in fac.~ 1\o44.n o.~~onal~ t.e 4QCUfe aAd ti.a.. \nO 1'IlI'tWft1i ~I«i ~., ttl. ~., ~vto. II .. ~00:1 tt'-arl
_8Cfl -.cW" q...-c:l.dO'd av ~ ~ ." flc:1l'nY~ ",<1\,I0.l114 ~. ~ f", In U"4 httum . . ,n ~ to AllempJ.arCl'f" 01 U"ie ~-u.{U'"pPf CO" the uz.t.e: 0
l>lIhCd ~ D"I' ~ ~ ~d14U Q' .1"I.e'"
fTI..t ..,.",,~'. ~ .,." 06f"#CrI~ .a&:ld t2\.a( .~ Nlurtt. ~l be cu.d wtth the Qjs.tn.a ~r-.c;tQII ollnt~j
~ . rt I, ~~ ~lllocxf t::\&f tI'aII l.J,LQ.I.,... sl'\d tnlt .1oc~ 14 'lid _. ~ lot v-.
~ QI ~ a:s m.adA Uld \.noaIr 1lI;bi1Wy kif ft1lll ptI't\6It~ :>roo
9OldO:f fQr ~s... ~$4 01 tt~l"4 AltWl\~.

~ ~ i14 tKl QA.II11 at..., n.a-re 0'104 ~il\Ont., to •.-.:ei_ eoMOd4rntW "".~ And I\&lI ~ te t:JfOOant l/t"Id ~ tt>4 lu ~ ~ DoayfotJ tM r~~
d~~ll>"'p r~. ~nd comovt4'l' C'I.If0fJ1 lor '~i<s:t I~U:ll. 10 .ec:...... Of c.el1.d ~ 111 prr~ GI ..,., (If IN~ ~ '&lIoe~ ~li.ln.. f:1lI in*tS2. 10,,.n"""
dr4I~a.t1!l dV1l'1Gnly b QlI' ~ ,~jh.l'. M~ 11. P.",A.aNt L.aNa lEARE"l lilt It. ,~.t~.... ~ &f\.all ~tvdd. ~ not tG Ilnur..cf to. tl\4 ~i<:lf't 01 r:on-
s.-m1l ""~l~ l:-ur UJl1\,jlory ~ I~ U~•.u31N'n1.and .:0I1<!<:fl.Qn Of ~ \.A..... anc2 U'wt o-..ecvti.mt of ~q ~s.

Co~41I ert &Qtl~ ~~d a1""'" .',MIWl ~cmmu(t.c;niOl".~dmif"S$Odto t,.". !a¢ayClff~in ~ ~ .~ £!'Ioe .t~ m.aa.er.s £J\OuI.d l)q ~! ro ...~C ,..,
Sl4.NA 'CJfI ~U ~E~£t.. ~ c:;i ~lton 1',.tT ~ c.:.mO-Vly InI:. ~1 GQJ4~ Co&18.l~ ~ F,~. ~ ~tC2.

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.,..-~ CW' 9d'~j~ on twtt~ af tl\4 c.s.p.ay..,. , c:ertily ~ I ~ m. ~\ll.o - ~ IN.a ~ 01 AJIOfrwr, CIA ~ 01 LI\q
r~II~"", ~/:~t..-/:.-c -',
DAVrn"'"r'. SA.~r ~ Or:tECTOR OF F!~ANCE: OEC::::!3ER 27, 1984
. ~ " r.... ~ro

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Not ~·'Y S<.3t '>efor~ me" r? _ ;;her- tt, I) I .-. . . /

$lata of • C~ I~I ~ duly ,omm;:J~ 1ttC2 ~WOl~~UY acpe~e:t.~~""""""-";~_.-....,;x


'"Q¥I1'\ 10 m.lc)~ (tie, ,(~:f¥ .
«,.,L.
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of tnoe ccrgoraCiol'l Qe • ~tJ in and tt\:1i o~ed tf\e Mlhtn ;"s~ .11'4 .al 0 me fQ ~

t~ PQ(~0ll \lIfho lUte l!ltd that within Instt~1 an bctnalf 01 thlt ~potaCioCfl lh.c1e~ ~. UlId
eo ff\4...
~t'Iowl~

I W?fSSS '/. HEREOF a ruv.. 1\e{mJIlto Jet


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'-< ,'"'; Tr. {'.;o; r ,..- lb4
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fl'Ja.1 $.&ld\ CClpQr4(~ B14'OIfed the ~ ~ 0* .... tt~.
ltJitld .and lObed my cW~ lea. In f~
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",.dJc.llI oi ea~y1lI. Q11Jf14d puOI~ ~ann..~ ~Qeids. ~ .KTw.-~1,.

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.,ci1 Ciold4ttl Ga 1 e Avenue Francisco. C,;JJ tornia 9cC102 (J15) a6~·2929


Internal Reven , \L

In~er~ 11 :3,?ve"ue '~ves:ern i=te~lon


Sel"'\l ce C~"ler '=resno. C.alilornla
In r-aply r'"O!~r to: 8951607241

Dato~ JAN 2 3 1591.

Tax:'-ayer Identific.:!.t!on Number':"- _ I l""ly

T~ ~~t"iod: ep 30 1 199Q
Form: 41
IRS Control ~urnber:

A C"ev~e~ of yOll..... aC:=OLlnt for the Cd..:2: period sno'-l1 above 1ndic~te.9 you may not
have i:Llade ?eaer-al tax de?Osit.9 in sufficient. ~Oll.nt.9 ~hen due .
./
[Vj Sased on your ~G.X l:Cibili ty r":cord y C1 ~:1al 'ty of ~
assessed at this time.

C'~' 3egi~~ing .ith e~plc~ent tax de?OsitB r~quireci to be ~ace aftec July 31.
19S0, tl1",de?Ositec of 5100,000 oC" more :lUi3': :.e de:O.9L~ed ~ithin d
aoCUIlt.s
e~ci:~=d ~\.uaCr:!" af can.k::1.g da)rs a'::er the .:!.ct.ua~ clay the a.:JO\tr.t for de?Osit
r"eac:'1e~ s:OO,COO. (Ge~e:-~lly, thl~ c.e.y uill be d. ~y Gate.) ?or- t.a.;r: ?=I:"iod
enc ing 'Dece:::.e r' 1990 t.hese taxes all.lst be de?06 L~eci r.; 1. th in one "c.ar..k:'ng day afte:--
~he day on ~hlch the acct~uleted lU1dcpos 1 ted tC!..Xe s :,each S ~OO 1000.

[J Eased on the infor=ation provided on your tax ~~t\~n, it a~peer9 you ~ay be
subject ~o ~he ne~ SlOOJOOO deposit rule; ho~eve~, your tax deposits ~e~ made
UIlc:le ~ the S3. 000 'C"'U Ie . rf you find you had t..:.nde?O~ i ~ed tues 0 f S100,000 0 t"
l::]ore on a.~y cay. Schedul~ 3. Supplemental Record of ?edet"al Tu Liability,
should hav~ been filled c~t anc t~e :ede~al t~~ de?Csits should have been oada
~i~hin t~e tL=ef:'~e eta:ed above. If this is :he ca~el ~e ~:ll ~aive the
fa~lu:"e ·to de?Csi t ?enal ~'I fo~ t~e ':..ax ?er'iod endi~a Septe:::c.e::- lS90 and you nee-d
rlot :.:..tee e.ny additional action. ;':c~eV'er-, 'oegi!"...:'1.1ng ~i~:t ::..a;:: ?€r":"oc. e:ldi~g
Cece:lbe·~ 1990, you ~tlSC c:Jo?le:e ~~; :-e~:-.1i:-e~ Schec.ule 3 ~d ce~Blt taxes of
SlOOIOOO or =c~ ~ithin one banki~g day to ?revent a fail~~ ~~ de?Qsit ?enalty
fr-oo bei:1g charged.

[J Cec.:H:se :JO\l:" ~e t.urn did not sho~ t:~e 1 ia.b i l i:y orea..1.<cC;"1l or co C":'ec t
bre~co~~ fur each de?Ce~~ ?C~ioc, ~e are ~Lo?Osi~g d late de?Osit ?er.alty_ The
pene.!t.y :.:i11 'ce ':':'gured by dl'/ici."1g t~e total liability for the quar:e~ by the
n~be~, of de?Osi~s that ehoulc ha~e be~n made, ar.d then cC~?G~ing your deposita
~ith 'the ~sul:~ng ave~age.

,...-
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- .....

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1-.. • J
,-"I I
- B
. . .., .... r.'
January 31, 1991

#227
Department oftbe Treasury
Internal Revenue Service
Fresno,CJ\ 93888

ACCf# : 94-6174066
CLIEl\7 Stanford University Hospital
FORM 941
PERlOD 9/30/90

Ladies/Gentlemen:

Tnis is in response to your notice dated January 23, 1991 concerning the above client
and tax period.

Enclosed is a check in the amount ofS91,854.85 to cover the remaining balance due.
Please credi~ this payment accordingly, and place this account irl a balanced status.

Thank you for your continued cooperation in this matter. If we can be of any further
2.5sis!Gnce~ please CODlaC1 us at (415) 597-6500.

Sincerejy~

r-2LD
~~~ie~
Tax Specia.1ist IRS REP #90C5-47801R

RS/pc

cc: Stanford University Hospital

Enclosure

One Market Plaza • Spear Street Tower • 32nd Floor • San Francisco. Califomia ~'05
415/597-6500 8001231 -2929 FAX. 4151974-1755
0 .. 1-01 0

/ .0,-.;

F-....,.....~~:;:::o'~..... .....'- ......


~
j
HAMILTON TAFT & COMPANY
OPERATING ACCOUNT
10
, MARKET SiREET PLAZA
1 SPEAFI STREET TOWER. J2ND FLOOR
I;·
... SAN FRANCJSCO. CA 94105
JANUARY 31, 19.i.L
~AY
~.
~!
TO TH:; OF'
OA::Jc~
INTERNAL REVENUE SERVICE ~ _ $ 91 ,854.e:
r -
94~~7'!.~S:: ~U 01 .,009 77~l T?
'It

Department of the Treasury O:\tc o( this notic!!: F Ea. 11, 1991


Internal Aevenue Service Taxp:lyer lrlentifying Number 94 -61 7 ~ 066
FRESHO, CA 9338a Form: 941 Ta)lPl?riod: SEP. 30, 199C

For assistilnce you may


callu!iJc:

STAMFORD UNIVERSITY HOSPITAL 1-800-829-1040 ST. a


227 ~
300 PASTEUR OR
STANFORD CA 94304-2203
Or you may wri te to us a r
the addre.!s shown at the
left. If you write. be
sure to anach the bottom
part of this notice.

STATEMENT OF ADJUSTM5HT TO Y0UP. ACCCUp'T

BALANCE DUE ON ACCOUHT BEFORE ADJUSTMEHT $.00


ADJUSTMENT COMPUTATION
PEHAlTY SEE EXPLAHATIOH 03 $91,854.85

HET ADJUSTMEHT CHARGE 91,854.85


.. ' \
BALAHCE DUE $ 9 1 , 8 54 • 8 5~'\ '

ARC - 03

S91,854.as FEnERAL TA~ DE?OSIT IHSUFFICIENT - SE= ENCLOSED HOTICE, CODE 03


PAYMEHTS - SEE EHClOSED NOTICE. CODE 16
ADDITIONAL IHTEiEST CHARGES - SEe EHCLOSED HOTICE, CODE 19
MISCELLANEOUS - SEE ENCLOSED HOTICE, CODE 2S

Tn.
·~I"~,hQn~
rTl(lI-:~ ~urF? that
calls.
IRS employee'S give COurteous re:l'ponses and corree: information to taxpayers, a second IRS emolovee som~~im~s li~ten~ ir-
'I .. - - , .. ~ ................ _J~~J.JI"'\I'" II"O~"'r'~~ ........ _ .. II C-..-- .......... I~
- -- - ~- - -- - - ----- - - --"'----- - - - .. - - -- - - - - - - - - - - - - -
Ja'.e .; .. -, 5- ~ /
~ ,-.
,...
. . ' • ( H Code. 2 Z 7
;::..e t"'" _ ~
Form. J '-=,t?C'-c ..

Period .I.e£) & r-<-


Year, t 970

Dear Client:
Enclosed please find documemati'on returned to you ior the reason(s) indicated below:
.f/ The enclosed is 10:' your information and reference only, No action is required.

(] We did no: me your Corpora!£:. Ex~ise. Sales. Use. or ~ _ taxes. You a"e
responsible fOf responding d,re:Uy 10 the taxi:1g agen.:::y.
[1 Plea.se complete and ma~ the en:losed ap;=!li::.ati::ln to es~at>lish an account number with the
su~jed Agency.

r1 The item refers to a period prior/subsequent to you using Hamilton Tab & Company Tax
Service. You are responsible for responding directly 10 the wing agency.
I ] Our records Indicate your company filed the return(s} for this period. You are responsible for
res~onding directly 10 the ta.xing agency.

(1 You. have terminate-d our servi~es and ere responsible fo~ fi!ing this T2iUrn. Plea se nolify the
proper Fedi?ral 2nd State a~i?n:ies tha! you are no longer on Hamil10n Tafi & Company Tax
Service and dire~~ them to send yo~r mai: to you. (This v,'il! ensure you re:eive your mail
directly from the agen:ies.)
[ ] The anached credt win ~ apt)lied 10 your neX: appfica.~le Wing
[ ] Our re~ords indi:.ate th2~ this is no: 2 valid refund. ?Iease do not cash this check. The
chet:K should be returned to the latina aeeney.
[ ] Additional taxes a~e c:Je to the agen:y due 10 an in::re2se in your SUI rate for the Sta~e of
_ _ _ _~ for th:: per!:xj from ~ ~ _
10 _

(1 An amended rF:~ur~ ri:'-=1:.Jes~ is necessary. COnii3ct l'o:Jr Tax Spe:::iallst.


[ ] You have no: alt.h:lrize:j us to fiie on your ~~aH in 1hE Sla:e of _~ ~_ _
You are resp:>~siole 10:" Jes;Jo~ding dire:tl;: to the t2>:ing 2;:?ncy.

[J WE ::-e ur.~~;c to IC=2:e yovr cfie:-:t c:xi~ o~ O~r file Please return this notice 10 US indi:al:;'lg
your Ha;nii~O:"', 1a~ & CO:":":~'il Cllcri: t.
[1 The Notice D~ O.. ·a:"~2·r·:7Ier.: Ca:~j re?resents lhe 1 sl 2nd 3rd ~:n
(circle one) qU:'ier c~ 19 _ ajJustmem processej on p"JS
ap;J!i::a~le interes:

Other: ----'--::;...---7..,L;J,.=--e....-='?"'::=.;;:.....:;..:..--------- ~ _

PleaSE' CO . .,I.?:! Y8'J~ T.;'I' S;:.:::i2'IS: 2: (41S) e?'~-€J:':' ~ Y:l:.: have an 1' QUEstions re;a~dln; tli=
aroa::.he:::l do:uii'l~~i:
QJ·ll'91 06:46 '64 i'5 801~ ST.\.-\. CO~TRO. ~OOJ
....

Leland Stanford Jr. University (#139)


Fonn 941- 2nd Quarter 1990
FEIN 94-1156365

Timely
Period Liability Deposits Late/Short
4/4/90-4/7/90 5,462,955.16 4,104.29 5,458,850.87
4/20/90-4/22/90 5,406,335.61 5~132,881.52 0.00
3,137.30
5~136,018.82 (95%)
5/4/9~5/7/90 5,4.17,304.35 5,143,173.00 0.00
3,266.12
5,146,439.12 (95%)
5/20/90-5/22/90 5~44J645.31 4,978,703.97 0.00
3,709.05
4,982,413.02 (95%)
6/4/90-6/7/90 5,428,543.23 5,153,598.69 0.00
3,517.37
5 t l.5'.116.06 (95%) ---~- ---
-------~-
-------~

___ §jAQJ9JJ~6/22/-90- -5,218;7-80.-15-- ------5~OT0_,l35M--- --- 0.00


- ~ - -- - --~ 4,613.11
5,014,848.55 (95%)

Total Late Deposit 55.458.850.87

5% Safe Haven • April 1990, Paid on 5/15/90 363*15


S/16/9D 27Q,lSr.66 '-- ._.- .& --_.

270.S14.81

S% Safe Haven • May 1990, Paid on '/15/90 367.15


6/20/90 532.73037

~33,097.52

5% Safe Haven • June 1889, Paid on 7/30/90 534,.938.64


7/31/90 420.13

535.358.71
~ ~ •• ? ~ ~

.[;~£:n~mnuJf ;.-l"IT"'~:-: -:-:-, 3~;r-:'" t"':~r:~ " "';: _-:-_~~ ;'I" l"';.ml"'l !,~jik41"'J~twl! "
".....,--r<:'::;--.-_=--:...,....'....... -"':-1d-'-'Jl"'!""c;"""':Z""""- " P I:
!"; -;I
. ;:;:-.-

June 24, 1991

Mr. L.J.Chrls Martlnlak


Feldman Waldman & KLlne
235 Montgomery Street
27th Floor (Russ BUIldIng)
SAn FranCISCO, Ca. 94104
l

Re: PENALTIES FOR LATE REMITTANCE OF TAX DEPOSIT LIABILITIES


Tax Form 941
Years 1989 and 1990
Dear Mr. Martlnlak:
I called thIS mornIng. I was told you were In the bUllning but not 1n your
offIce.
Reference IS made to your IntervIew/InquIry WIth me In AprIL 1991. I Just
want to make sure you have the complete InformatIon relevant to one of your
quest10ns. After the Interview I checked the company records. The follo-
WIng employees/offIcers APPROVED PAYMENTS OF PENALTY ASSESSMENTS due the
Internal Revenue ServIce assocIated WIth the abovementIoned late depOSIts:
Name Title BegInnIng
Joseph Maltless VIce PreSIdent January 1990
CIndy Crowe DIrector of OperatIons March 1990
Albert t1ay VIce PreSIdent April 1990
Vlcky Olmalanta VIce Presldent October 1990
Jerry Klelnberg VIce PreSIdent November1990
Very truly yours.

c C FrederIck Wyle, Federal Trustee


Federal Bureau of Inves~lgatlon~

One Market PI~a • Spear Street Tower • 32nd Floor • San FranCISco, California 94105
415/597-6500 800/231-2929 FAX 415/974-1755
t!
/ I
I
• b7C

Hamilton Taft & Company


One Market Plaza \
Spear Street Tower, 32nd Floor
San FrancIsco. CA 94105

Memorandum

TO. Tax Operations DATE: June 6, 1990


Correspondence CC: AI May
Clencal Support
DEC ~
FROM Cindy Crowe oV
SUBJECT: Recap of Dept. MeetIng

Confidentiality is stili an issue - DO NOT discuss HTe matters with ex-employees

II Documentation

a) Write call reports on anything discussed with a chent that could be a potentIal
problem - HIn doubt write onel Copy Client RelatIons, your supervisor, me, AI
May, and anyone else rt effects.

b) Request wntten authorization from the client for any requests that are outside
normal procedures - I e.' Request to change a pay-date, request to finalize a
state, request to change rates, etc. tf the chent can't send a letter - Send one
to them to sIgn and return

c) Confirm conversations to the client InvolvIng penalties, missIng wage listIngs,


other mls!:'.!ng Information or other problem areas beyond our control in
writing to the chent. (This should be coordinated with Chent Relations - See
your supervisor on specifics.)

d) Do not finger pOInt in write-ups - State the facts only

e) Report all of our mistakes in writing and make sure that we correct them and
double check the correction Watch Deposit Dates, EFT Dates, etc to make
I

sure that you get corrections done on tIme DO NOT cover things up. no
matter how small the mistake was

III Pay attention to detail

a) Think about not only what you are dOlng but how It effects other areas
t
• b7C

Hamilton Taft & Company


_ One Market Plaza
Spear Street Tower.. 32nd Floor
San Francisco, CA 94105

Memorandum

TO. Dale Shiozaki DATE. June 25. 1990

FROM. Cindy Crowe cc: Al May


Ed Bltonio
Jeanne Asdourian
KatIe Watson
Connie Bempayo
Tony Tabangcura
Mike Fang
Tax Specialists
SUBJECT: Archive & Pnntlng of Laser Ledgers

Starting Immediately I would like to change procedures on the archIving and pnntlng of
laser ledgers. Since we are now keepIng each quarter on fIne on the computer for
approximately one year, I would lIke to hold off printing the laser ledger until we are ready
to take that quarter off·llne. ThIS WIll result In our final laser ledgers being complete, wIthout
having to manually update them during thIS extended penod

The ne\v schedule wIll be as follows'


Archive & Print Bring Up New
Last Week Of: Laser Ledgers For: Quarter Of:

June 1990 89-3 90-3


Sept 1990 89·4 90-4
Dec. 1990 90-1 91·1
March 1991 90-2 91-2
Etc

Please be aware that we will need to coordinate the timIng carefully and take old quarter
off-line when we print the laser ledger so that no entnes can get keyed before the archieve
Also, we will need to keep the check file up for a longer penod so that the check
Information will be accurate In the ledgers

Let me know If you see any problems in this change in procedures


~~PL y'-MESSAGE
~ Vicky Dimalanta
,TO' --~-------------~ •
V1Ce Presldent, Cllent Relatlons/Consultlng Serv icesSAN FRANCISCO, CA 94105
HAJltON TAFT & COMPANY
74 NEW MONTGOMERY STREET

(415) 863·2929

SUBJECT
Your Memo of 11/28/90 rei Federal Correspondence IlfPlY fXXl
NECESSARY ~YES
0 NO DATE
11/28/90

ThlS 1S to clarify the issue of responsibility of malllng the clients caples of


t e f d ra 1 r----Lit.l.r.........1i.....;;l.s---.Jfu.QLLr..lllWi..ur...1.ldLJ;;;e.I.Ld......Jto<l.lQ~yooLlOUL..&.. ~

You (your Department) will be respo os i bl e for rna 11109 TO THE CL I ENTS the eli ent
e-s 0 f all-teetera1 -cor r e-spomte"nc-e.
l----r-T""rT.....;....

Thank au.

e e L i nda Ghigl iazza


SIGNED

,--------- SIGNEO OATE


• HAMILTON TAFT & COMPANY
One Market Plaza
Spear Street Tower, 32nd Floor

San FrancIsco, CA 94105

MEMORANDUM
TO: Romy SarmIento

FROM: VICky DimaIanta


DATE: November 28,1990

RE: FEDERAL CORRESPONDENCE

Effective ImmedIately, chent copies of all federal correspondence should be


forwarded to me pnor to dIstrIbutIon to clients.

If you should have any questlons regardIng thIs matter, please call me at ext. 6524.

b7C

NOTICE

! Files

Clerical
Support

!t , PTA

Correspon-
dence

!t
Data Entry

l...nIUra\d~\WOI'ld\ooI; ~hl) I
• 0!;/7r:=~
Hamil~D~ft&COmp~an~y~~~~~~~~~~_~~~~~~~~~_ CORRESPONDENCE WORKFLOW
b7C

Clerical Support
Receives mail and date stamps.
Determines whether client is active or inactive.
Places client number and PTA name on notice
(If cancelled, circles date range; prepares a label either addressed to client or agency; and
prepares a form letter.)
Places the notice into the basket designated for correspondence.

Correspondence
Highlights the notice noting: Type of form. state, tax penod. amount, and type of notice.

Data Entry
Logs Items into the PC.
InItials the upper right hand corner of those completed.
Returns to Correspondence.
Prints Correspondence Log on Monday.*

Correspondence
Separates states and locals from federals
Federal is worked on by Correspondence
• Responded to
• Logged off of the Correspondence Log.

State and Local are worked on by the PTA.


• State and local notices are filed by Clerical Support in the open files of outstanding
correspondence items by client.
• PTAs, using the Correspondence log as their gUide, pull the notices and respond to
them.

Clerical Support
Once the PTA or Correspondence has responded to an Item it is filed by Clencal Support
into the client files in the shredding room.

* Log distributed to supervisors and PTAs on Tuesday morning.


90/4 FEDERAL DEPOSITS PAID LATE
CLIENT '# CLIENT NAME LIABILITY PENALTY (10%)
10140-09 Woodbridge Corp. 200,012.04 20,001.20
1134 r-j-+ --eBB Companies, Ins, as,466,GB 6,546.61 n"
128 Ungermann-Bass 574,91.1.76 57/491.18
148 Cygna Energy Services 152,000.04 15/200.00
163
165
W4d A-elas IIe=telo Ina.
Mabon, Nugent & Co.
280,961.87
507,339.20
28,896.19
50,733.92
~~

181 II First Capital Life Insurance 227,406.39 22,740.64


212 '1-;/'7 Oaklalld Athleties Baseball C JJ9,Q41.Jg 3J j 9Q4.1J 711
225 Action Instruments 90,900.21 9,090.02
227 Stanford University Hospital 3,339,083.87 333,908.39
247 ~~ ee~~~ Sa~iH~S & LeaH 149,525.92 14,952.59 v 1.-1
26"
2723
290-02
Glendale Adventist Medical
Y-/>If- Eleetrio Pever Research Inst
Signet Armorlite
909,611.27
384,451,:17
195,006.86
90,961.13
3 3 , 4 4 5 • 11
19,500.69
n"
302 ~~ & R GIQtAisFS 197,951,a4 19, 795.1-2- r 2C;
340-08 American Residential Mortgag 354,303.22 35,430.32
353 ~~ -Mt. DiaGIQ UQ.~ital :Z:Z7,GSS 11 ~J, 7g5 51 "-..7
354-02 ~ LlH:::S.iLrt. tntQrt • .i.a:U;:\SRt 1.4ai147,~6 14 I 8-:1-4 ;-9-5-- ?Zr:
377 The Customer Co. 137,2.46.17 13,724.62 t

391 Verbatim 160,468.54 16,046.85


404-02 United Savings Bank 171,815.38 17,181.54
408 Springfield Sugar & Produce 586,100.09 58,610.01
410-02 Brinkmann Instruments 137,467.64 13,746.76
417 SCM Chemicals Inc. 370,788.29 37,078.83
437 Castle & Cooke, Inc. 355,219.98 35,522.00
439-70 Bud Antle, Inc. 153,446.51 15,344.65
453 Polytechnic University 466,732.84 46,673.28
454
455
1-.Af- All ..! tcltieriean GO\:lnnet
SCM Metal Products
1579,479,91
83,047.64
67, 947. 99 .., ~ QJu~
8,304.76
463 Castle & Cooke Fresh Veg. 166,674.55 16,667.46
480 Guckenheimer Enterprises 179,632.47 17,963.25
509 ~~~ The ViAta§e Cl~b §;a,44Q 3e 5,244.e~ ":<9
516 Ross stores 188,606.27 18,860.63
517 Rochester Institute of Techn 81,076.18 8,107.62
520 Genstar stone Products Co. 313,270.50 31,327.05
5~1 Degussa Corporation 390,262.22 39,026.22
522 Neiman-Marcus Group 4,059,143.42 405,914.34
526 Pullman Company 195,123.71 19,512.37
527 King Bearing 317,109.34 31,710.93
532 The EVB Coopany 77,132.51 7,713.25
538 Springfield Terminal Railway 80,742.69 8,074.27
5468 NEC Electronics Inc. 463,857.65 46,385.77
548 Blue Cross and Blue Shield 1,018,870.44 101,887.04
549 Claris Corp. 164,916.52 16,491.6~
555 Payless Shoe Source - 1,810,699.98 181,070.00
560 BW/IP International 173,545.58 17,354.56
• b7C

~~MATED PENALTIES

563 Monroe Systems for Business 216,506.81 21,650.68


566 Pacific Presbyterian 905,332.29 90,533.23
567 Texas oil & Gas Corp. 88,208.40 8,820.84
569 William Marsh Rice Universit 621,757.11 62,175.71
570 S&S Credit Companies 5,257,474.00 525,747.40
571 Reckitt & Colman 522,427.92 52,242.79
575 ENSR Corp. Delaware 67,9]).77 6,793.38
580 Sunbelt Beverage Corp. 137,990.63 13,799.06
581 Sinai Hospital of Detroit 1,061,479.95 106,148.00
582 Federal Express 16,555,284.08 1,655,528.41
583 Kendall Co. 626,712.76 62,671.28
585 Commercial Credit 1,]62,362.63 136,236.26
586 R.R. Donnelley 1,610,862.44 161,086.24
588 state Bar of California 283,685.63 28,368.56
590 Scott Paper Co. 1,311,032.62 131,103.26
593 Jim Beam Brands Co. 225,637.96 22,563.80
6499 W~
674
Cohetent: IRS.
Mills College
447',964.65
122,525.56
44/1~HL4l:
12,252.56
7iG\
841-01. Diamond Walnut Growers 116,575.58 11,657.56
-------------- ---------_ ... _---
TOTAL 52,929,246.77 5,292,924.68
============== ===============
o
'I
! ( --- -- --~----

-
e-''!''
-,.

CHE~1 S BY CLIENT # b7C

.....

CLIENT
if
CLIENT
NAME AMOUNT
CHECf'
DATE
~ED r; "1
# .'"
I;
Of) 1:5 ~.;to1USEt1Eh\T COF R .t4, 18t . 86 v E /~:;/89 94-1 :'~94ti' S'..,.a
00 138-04"'R}0 .r:;,~, 945. 1 t V 8/:~/89 1 ::-119:'04 0
0') 144 • vOL I I..'ETT I ADI./ANCED S:08,915.04 ~ 8/:~/e~ 1:-:9CL:49
00148 ~CYGNA ENERGY .t117, 148. 9~ ; ; 8/::: 189 94-=~7S2:"2-
00148-01 vCYGNA COI'JSULTING 1-'/... c .; 1S, e 16. 89rY 8/:3/89 94- :::?O~l::"
IJI) :. vt·It:.H:::'U I"" I:. ,. ~ '( ::l 1 t::.jPI..:::. .; ..... l'7,_..J, .JJ.7 6/::'/8', '7..J.-1::-:8:27
~ OC) i 54-I) 1 ~E ~ SURE=:: X CO RF' I, ( ZI ~O ;'.'1' .t35:::, ::0':. 57 ~...e,' :3/89 94-1 c:~C6w 7
"t1 1)01 ::4- /): a1'1EAeUREX U s:,::0.18 ~a/~~/8~ 94-17:6;77
(1) 154-0::.... ;·iEAEIJF~E l; .;4::. C 1::. E9 V S/:: la9 ..!L.ldQ:~~-=:8 :-l
------:,J':"":I.'~.l.-::w-....---:;,..,'::"'·II--.I.-,:""'!'W':':"'I·~---:'I·'~·_':":"'I'..:;; .....r::.~I~,j---------l~~~;:T;_~::l :; :-9~ E/::7€9 - 1::-=:::~Cr::b 0 .,J
0(1169 ~MEr;rCAr.: MICF~O'=:YSTt:MS .r:l.47',~18. 51)./ 8F:::/eC'" 94-16=4~~7
0(1186 r;E:.: MAf~1 £T ..t 1 :~, 6:::.9: V" 8/::/8'7 95-~f)S::64S
1)0'::0 ":-j!j HUDSON ~ 18,997.60 V.8.':'3/87 ::6 -1:4::::6 ()
O,)'::lj-Ol "'ROtJT LOWELL $;:,317.56 v" 8/:3/89 :::6-21 :;8~4 7
00::0-,):2 ...1~OR 7HLAIJD r: LAS T r CS :-1 ,59:: .. 8~ v' 8/:::/89 '36- ::1,X:;~ 0:'1
00:::5 YACTIOI\~ INSTFiUMENTS ';-::1 , 1 ~7.::::: y 8/ ::-/8 Q 95-~7"167:~
00::::6 II"JEL MANUFACTURING $::5,640.:::: v 8/:3/89 t:;J5··19.1948':'
()1):~7-(I1 "'RAP I DATA $4::,814. :: 1 V 8/:::/89 1 :-~749~9?'
~~~ 0(1:'10 ....GERLAND FOOD FAIF~ $S':,81'i.(): v' 8/::3,8C7 74-139:5C)~
NL;. Ol):10-\)1"JEG FOODS .t~,148.88 v8/~::/89 74-128::751
8""c.# (IO::l(l-(C"'GEALANDS FDOi:' F'AI~TI;Y .~..;.,:s~. 9b'/ S/::::/E9 7~} -l~J:::c:q
t)O::lO-O:. ... ~1 ;:. s M~F.~~ETS .;-5,':=6:-.:8 ......... 9/Z::/89 74~1789:::~ c.
8:> .it ~ 00:: 1C)-Cl5 rGE;::'L4r·!DS f;E~L T'l' $:: 1 , 79::. O~,./ 8 l::: /29 7 ~~O/)38S') '3
00::17-04 ~OS EN\'-' I ::;'Ot"IENT~L .t31 , 14::. 94 V 6/::::/8<:; 9.:1 -::::9~9c 11
(IO:-::O-Ol ....HPO CO elF SE,JF'2 I;-.A__- _ _~. .; 14 11::. 1 e v 8/=:'/S~ ~8- 1 t:':'61 c;.L A
ff;6 ()(/-_4:'
-
~t~-EF\

r'._H"---WE~_T
.. ~. - • .,: .- _
1.J~/!-..-=-:....lc.
-!::-t %"c~"'::;""~e:"4 ,1
,-..J J • -i:J: O··.;~ 1:;0
-....t::-~...-.~:- -',
\..J I
O_.I..,_ -.'4 -l~:.T.:""-
- ~ -

Vi- 1.11.1::;5:: "1''1T DIABLO l-j6'SF;-IT~L ';189,61£.71 v 8/~::/t:C7~-~94-6CI(l::8474


(10:;54 -1.-UCASFILM .t13a,067. 7:: V'" S/~3/89 '74-2S(/(,64.:l.
~~~~~0~O~:~5~4~-_O~1~~~S~I~v~I_W~A~L~.~E~~~C~IE~'_j~~~_~
__~~_~,~57.11 ~ ~!:~/29 t~-014e~~7~
7 ('(J_,~ -: v~EF F;:;E II..::lrl T -r 1 . 4 c 9, 58= _::::; F( .; "-::
'29 71-(<:::4'7'~-'t
(\(':64 vINTE' C-'I;'-' /tl, 17=,0:;14. ':"1 ~ 7/1=t/8'!Jo 'JI 94-1.07:-;::; I
J 0(J::64 vJI\:~E~ I-~I~~' fc:JS7QQ7.37- <"_.t~.18Tc.sI:Je~=(:I_~_~ 7/1~iQ'.., =:1-_1.6.7'::-!.~
0(/:7"7 ....THE CUB T ..Jf>IER CO .r 1-l2, :'J.1<:;'. (\52 v" 8.'~::/ 617 9:1 -15G.=( - "'t.7
1:,0-:::77-8(1 alT~r:: CUST,Jt-1E, CO $"=,:,. :sJ
2/::/89 9.:1- j ::2:'1:'4 OJ
§) ~ (11)::87 "'SC~nlE sEsl/rCE5 So. (J(,:. '74 V" 8/:::/9° 7'4-.1 t7~. :.s'
I
1\
, " .. b7C - L----

I
I
I

CLIENT CLIENT .f'; CHEC~:.'" FED IIj


# NAME Al"IOUNT DATE

!JO:-90-C4 ~TAF\TING F'IONT $"5 7 , :61.:;1 v 8/:~/89 94-:~T~7Ij.l -


GO: =r(J-! (l vCAEEi1ANOR HO 5 F' I T~L $19,:70.:4 ""8/::/89 91-11:';768 ~
OU:'1(J-l: t1:AF-E UN I T HOSF' I TI;L ~:7,999.69 ........ 8/:-:::/89 ::-:;-0151::79
OO:::9!)-14-"NPHS INC .t45, :::::0. ~1 v 8/:::/89 95-:2551716..,t
OO:90-17~FIRST STEP CA~E UNIT $7,116.96 v 8/:::/89 91-1:St)2:5'"..J
1
00-:91 ""/ERBAT I M .t41 ,G70. 70 v 8/::'/89 77-()<)o1205'"
i-t 00408 vSFRINGFIELD SUG~R $=50,491.16 v 8/:3/69 06-08970:'
Z60, :::2. 01 V
"I
;1 00410-1:·:.taR r Nf~MHNN I NST 8/~::/8C-O 13-~3:;4bf55'
"I
" 0041 (J-(J4 "l\h;LGE Z::5,197.:0 ~ 8/::/89 1:-3::681~ ~
n0410- 1)5"-::P I E seE I NT r FIe $75,4:7.5a 2/~::/89 v 1 ".:-:':::::6811
1)0410-1 1 6 VI ERFi MANUF $:7 , ~45'. 8~ V 8/::::18S" 1::-··:::::6S:G
(;c)417 • ..SCM CHEN I CA~S .t 105.687 .. sa V 8/:::/89 1::-:::9(131)0 •
@ --(J,14~ ~CA:5TT.E-~;-- EOJI~.. Z::::/j, ::~4 .. 10 i7 8/2:;/89----=9-=9---:"O'03S!Og /!.
004:::7-7"O.,."SASTL.E ~I COOf~ $:0::,601. 69 fJJ;,~ 8/:::/89 99-0035::0"
004:9 ~BUD ANTLE CASTLE ~57.,816.6~V 8/~7./S9 94-1492716 ~
0('-4 ::9-7:~ "'::GD A~~T:-C C~STLE . . ..1.-,..,"'._
...... ~ ~ 0 .... . , ..
-"'FJIIou'1'"\ ' .... -/8-I
~r_-,

0044~ 'LANAI CO CASTLE S:4 , 566. 80 ~8/:::18':t 99-(114494 [;


0044~ ~MJLILANI TOWN CASTLE (" X:6, 0:7.48 -8/::'/89 99-01164:27
1)0447 "OCS(~NrC P~OF CASTLE ' ....11. ..'" ..;=r:;'~. 0: 8/::/87 99--1) i ')631 t{
,:; (Jl)448 "'OAHU TR~N2F'C"T C.4STLE J -1t-1,J .r:-, 1/)7.48 v E/~:/89 °9-,),):'J7 cE [)
(l(j..lS: ... ~l~, I ;:'LUA S USAF. CAS TLE. '::-:::'7,47a.49 V'8/:::-/8? OC-'·111~:'-='
, r.. II
t-I-I..,J 7
ttl
1~1)45=-7(I"'Wh=ALUH SUG";F: CAST:-E .r4~, 54(,. :::'1...f"u 8/=-=, 89 99-0 11. ~4a If
Ci·)4~::: vS~M MET ~L ~';"7 , '-J4,j. O,~ 'V S /::-1 '3'7 51-((~"3cE4 2.,
tf'OCEANIC CO~~ST~L1CT rc~~ /-1~-1 € 1 l y""" ~,
J

(11)46 •.1 r ..... 1 1 CI ~t-


.... .-
Q
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..... - , "9
~, - - i C ;:;'9-(':::=:': '"3
c)(l.l.::.l II"']':E;'N: C LE I =UF.ES I ~ 1.-'1" z;,9'51.T;-V 8/::-:::,89 99-(j=::~ :9d
004=4 ~JCLE AEFI~
:t'1-
_ ...."
_.,' 1:"-
, •• I.'Q .. ...J V /8/ ' /'c9
'-' ""!
77-: 1Q!i"061 ""7'\-
C(,481:J-(' 1 "T;:'S Faces ~.:::, 17:-.65 v" 6/~:-/29 9+-~=2.1.017 -,.t
r)(SI.l q If"T,-IE VINTAGE eLLl c, ~: ~ . 11 7 9.~ v e :' ::- /2 9 '75-.o.L ::c~ 'I
('05 L ~ "'SCSS STOFES 1:'""'\t....,
..... __ t. ,_ 'l.41J.. 1..,.
....... 1V ·./ 8'i _""'\-/c,~
_ -J c 4 -1 '::~(1~ 2'7 .,A;-
00517 ~~G[HEeTER rNSTIT~TE .$"-1 • ::I~'::~. 90 V 8/::::1 e q i ~-(Y7'~:1..l0
(,(1::-=(, ", '3~NS r;,~ STO~IE
(H:'S:' '-I:d ""~r;'Ur-IGEL A:=FHAL T
.; 1 c::" ) 4 ., 4 •.~ 7 VB,':: I ~ 9
$17 ,C;44. 9:2 v ~/:-::/67
;:J~=72~~~
··ra1 _L.J-:;' _ '7 AA.
...J .'

(1/:'':: 1 "':'ESU~::::"':' COF\':-' k5;,4~4.1~ v 6/~:/Sc 6 :::-<).:- T:;(Jil, 3 A

+ /7; ~JO,~7 liz;

-,
,
f' • •
1 ,. • '1 ,

CLIEI\lT ;:LrEI'~T 1:.;' C:HEC~ FED 10


J.I..
'!T \'IAi"1~ AMOUc-JT DATE #

(1(l5:: ..... Ni::I:1AN /"IAF-CUS .r:6~':;8:~ 77 v 8/:::i89 7'5-41195(,9


(',:J5:':I ~ Y'THE F'ULLNAN CO' $::.:4,047.1)1 V' 6/::/e9 (l~-O".:"59i111·
O(:5:8-t)1~~HEriFFER !61 ,4:: 1).45"/ 8/:::/89 1:'-:'!l17047
('05:::8 ~aF'F\.INGFIELD TERM I~JAL .t 1~::, 42:2. 44 Y 8/:::/89 0-::-6000::6 q
® n05..t:: ~~...,~~.ICAN t;Pl~ICER_ ~qLIF
9/~::/9~ .$1::4, 71~9. 5.2 V
94=.!!.?';1:5 (} ~
- (10548V'?LUE ChOSS TEj AS 93/ -J?.
S7 $'70~ 1 797 • q:3'1~7 I 1:; lSq., 75-L):::07 64 - f ) - -
1/ (\(1548 ... S'-UE CROSS TEXAS I ~, ';':9" 784. 59~ 8/:::/89 75-1:1"::.)7640
-(\()53:-oi~3')NY cor~F' N__ ., -. ~.. -~ i 3\:\-, 7:?~'1. 68 v" '37-:31 S=J . - - :~-~G78t)6-7
~9~-~~s--. . . ::cwf.iE-~·jDE-~ ----.-- -$~{5:~";-;!§li":-(ll., ~ 0/:::/39 43-,:1:;74 1).:;'7
- - ,)I.'::,...JO II. ~~Uf1ED1 M C...WIF "';1\J\(-'--~' ·----~7~ .~::E'; :-7·t - v-s,':::i"S9 o~ - ~ 2?-:::1).3 ..4-
---JJ..,-I,(iC'~Q--"'-:'A-LC·'i~-FO-I~IF~I'-Jv--
___ 011. ,-I _
~1MoI7 :-- I .. w~..,
".- - - -
_. _ _
·---~.;;o;-=
.. ,.__ _. . \.-!
...-=: 1--7=f~8-'''''-
.....", --.. I .....
••
I CO- -
....,.,.,. I _I r 'oJ J
..-_1.J
.:..--..... ::l~-L'I--
.. I.....J _0 I __

()('156 1) "'2~11I IP I:'JTERNATIONAL .!1!:J7, 388.95 V 8/~::/8'; Q5-:'887~56


S 9 ;.~~~~~ ~J.rl_~ .~:~13~!tCLE F'UBL:3HLNG t4d4. :5_=-.54- i?"c3I:Z::C89 94~.9~84"-+5o-
O()56~ "'1"f:JN~G~STErlS _ Zl('. :=~. ~6 89 7_8/:::/ '7_5:.~81509~ __
_ If:) 1:'1.' 560 .,.;:·.;c I r- Ie PRESBYTEF\ I HN .$8.20. :::J6. 39 ~ 8/:2:: 189 '74-149(;'/2 Z
: . (:·:,567 ~'I~~t:? OIL_!_ OA_S'-- :~"1:f..-fL~175_1(~~~~~~f~.§£.'2-:'!81-::-75-=o97..5a7)r--
OO~6\7 "'~l)rLLIAM t'1H~SH f\ICE UNP..' j:5..!.:19~')1.=....~~ ~!31.~9_ 74-11096~.O_ _
lJ(J~JlU. "'3 .~. S C:-\l.:..D:::r ~::, -:::s~,2 ..1.'~.(J() ~aI'2-=/.39 _ O~--:'<)~)88e£ 4
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RH5PTL35 1.00 Hamilton Taft & C~ny PAGE m
RUN 06/05/91 11 :08:47 loser Ledger
• • • • _~ _ _ _ M • • _ _ "~ _ _ _ _ • • • • • • _ _ _ _ _ ~ _ _ _ _ _ _ _ _ _ _ _ _ _ _ · _ " _ _ • _ _ ~------------_.~.----~--
• • • • -_.~._ • • • • • • • • _ • • • • ~-~--_.------• • • • • • • • -----~--~-

CLIENT OZ - UNITED SAVINGS BANK


O~04 Account: - IZZZZzZ2Z heport Sequence: AccMt
Quarter: 901 fed 10: 94-3009408
-ACCClJNT- PR PAYDAT JOURNAL TRDATE ·····DE8IT·~-· ~····CREDIT··- -----EFT-·--· ---DEPOSIT--- H ------CHECK-----· -CONy-
VCH HBR SCHfD ACTUAL SCHED ACTUAL C NUMBER -DATE- NUMBER
2100 0001 7GJ 011590 030 7 041190 101,757.n .00 200099106 041190 460332 U
020004896 020590 463589 r-
2100 0001 7GJ 013190 030 . 18 020190 144,756.54 .00 .Q
2100 0001 7[iJ021590 030 29 0217'90 125,081.30 .00 020006396 022190 465221
2100 0001 7GJ 022890 OlD 37 030190 74,155.02 .00 020007561 030590 466451
2100 0001 7GJ D31590 030 48 031790 103,517.31 .00 020008950 032090 467913
Z100 0001 7GJ 033090 030 59 040290 79,967.39 .00 020010120 0'0490 ~69'55
--_ .... _-------~.
. ...............
FEDERAL INCOME TAX UITHHELD 629,235.33 629,235.33 .00

• 000) 7GJ 011590 020 14 011190 .00 60,130.31 OH790 011790 011690 01.1890 S 200099106 011890 460332
0003 7GJ 013190 020 43 012990 .00 n,023.D9 020490 020290 020190 020590 S 020004896 020590 463589
2100 0003 7GJ D21590 OZD 69 OZ1l90 .00 59,695.13 022090 022090 021690 022190 S 020006396 022190 465221
2100 0003 7GJ 022890 020 90 022690 .00 46,495.93 030490 030290 030190 030590 s 020001561 030590 466451
2100 0003 7GJ 031590 OZO 119 031490 .00 51,412.66 031990 031990 031690 032090 s 020008950 032090 467'913
Z100 0003 7GJ 033090 OZD 137 032890 .00 48,695.65 040390 O4D39O 040290 040490 S 020010120 040490 469155
Z100 0003 7GJ 011590 026 9 011690 .00 3,036. 52CR 011690 011890 S 200099106 011890 460332
2100 0003 7GJ .!!1ll2Q 028 21 020190 .00 3,BS1.15CR ~ ~ S 020004896 020590 463589
2100 0003 7GJ 021590 a2B 32 021790 .00 2,984.76CR 021690 022190 S 020006396 022190 465227
2100 0003 7GJ 022890 028 40 030190 .00 2.324.80CR 030190 030590 S 020007561 030590 466451
2100 0003 7GJ 031590 Ol8 51 031790 .00 2,870.63CR 031690 032090 S 020008950 032090 467913
2100 0003 7GJ 033090 028 62 04029D .00 2.434.78CR 040290 040490 s 020010120 040490 469155
2100 0003 7GJ 011590 030 7 041190 57,693.79 .00 200099106 041'90 460332
2'00 0003 7GJ 013190 030 18 020190· 73,171.94 .00 020004896 020590 463589
2100 0003 7GJ 021590 030 29 021790 56,710.37 .00 020006396 022190 465227
2100 0003 7GJ 022890 030 31 030190 44,171.13 .00 020007561 030590 466451
Z100 0003 7GJ 031590 030 48 031790 54,542.03 .00 020008950 032090 467913
2100 0003 7GJ 033090 030 59 040290 46.260.87 .00 020010120 040490 469155
2100 0003 ALL 033190 030 73 042390 4.06 .00 200012416 043090 471558
2100 0003 ALL 033190 050 60 041890 .00 4.06 050590 052590 042690 043090 200012416 043090 471558
........ __ ...... _.. _- .. - .... _-- ........... _..............
EMPLOYEE fiCA TAX WITHHELD 332 1 554.19 332,554.19 .00

.0004 7GJ 011590 020 14 011190 .00 60.n9.94 011790011790 011690 011890 s 200099106 011890 460332
0004 7GJ 013190 020 43 012990 .00 n,Oz.7.49 020490 020290 02019D 0205~O $ 020004896 020590 463569
2100 0004 1GJ 021590 OZO 69 021390 .00 59,694.66 022090 022090 021690 022190 S 020006396 022190 465227
2100 0004 7GJ 022890 OlO 90 OZ2690 .00 46,495.58 030490 030Z90 030190 030590 S 020007561 030590 466451
2100 0004 lGJ 031590 020 119 031490 .00 57,413.41 031990 031990 031690 032090 S 020008950 032090 467913
2'00 ()O~ 7GJ 031090 020 137 032890 .00 48,695.54 040390 040390 O~029Q 040490 5 0200101ZQ 040490 469155
2100 0004 7GJ 011590 028 9 011690 .00 3,036.5DCR 011690 0"890 S 200099106 011890 46013Z
2100 0004 7GJ Ot319O 028 21 020190 .00 3.851.37CR 020190 020590 S 020004896 020590 463589
2100 0004 7GJ 021590 028 32 021790 .00 2.9M.74CR 021690 022190 S 020006396 022190 465221
2100 0004 7GJ 022890 028 40 030190 .00 Z,324.18CR 030190 030590 S 020007561 030590 l,6M51
2100 0004 7GJ 031590 028 51 031790 .00 2,870.67CR 031690 032090 s 020008950 032090 467913
2100 OOD4 7GJ Q33D90 028 62 040290 .00 2,434.78CR 040290 040490 S 020010120 040490 469155
2100 0004 7GJ 011590 030 7 041190 51.693.44 .00 200099106 041190 460332
2100 0004 013190
7GJ 030 18 020190 73,116.12 .00 020004896 020590 463589
2100 0004 021590
7GJ 030 29 021790 56,710.12 .00 020006396 022190 465227
2100 0004 7GJ 022890 030 37 030190 44,170.80 .00 020007561 030590 466451
2100 0004 7GJ 031590 030 48 03179D 54,542.74 .00 020008950 032090 467913
RHSPTl35 1.00 HDmll ton Teft & COfI1)!IIny PAGE 108
RUN
____ 06/03/91 ~ .~.~.w~
lasor•••ledger
... ___ ____10:51;21 _____ .. "._.H _____ • _______ _ •• __ ••• ___ •• ~ ___ ••• _. ____ ~ . __________ ._. _______ M_____ •••• _ •• - - - - - - - - - - -
~ _ . _ . - - - - _

CLIENT 00154 • MEASUREX SYSTEMS .INC. Account; - ZlZZZZZZZ Report Sequence: Account
Quarter: 901 Fed 10: 94-1698278
·ACCl1JHT· PR PAYD~T JOURNAL TRDAlE ·····DEBIT·--- ····-CREDIT··· ·····EFT····· -··DEPOSIT--· If ------CHECK--··-· -CONT-
VCH HBR SCHEl> ACTUAL SCHEO ACIUAL. C HUMBER -DATE- NUMBER
2100 0001 TDU 031990 028 54 032190 .00 193.32CR 032090 032290 S 020009511 032290 468501
2100 0001 TDU 033090 028 62 040290 .00 7.046.04CR 040290 040490 S 020010214 Q.40490 '69250
2100 0001 TDU 010590 030 2 010890 103,315.01 .00 020001663 011090 '59806
2100 0001 TOU 011090 030 6 011390 30,891.90 .00 020002119 011190 460279
2100 0001 TOU 011990 030 11 012290 144,241.34 .00 020003083 012490 461288
ii!100 0001 IDU 02029D 030 20 020590 125,203.19 .00 020005368 020790 464099
2100 0001 IDU 021690 030 30 022090 143,289.36 .00 020006703 022290 465534

I:
2100 0001 IDU 030290
IDU 031690
0001 TDU
0001 031990
0001 TDU 033090
030
030
030
030
41
50
51
59
030790
032090
032190
040290
223,520.43
120,122.93
3.673.03
133,874.71
.00
.00
.DD
.00
0200081'0
020009491
020009511
0307'90
032290
032290
020010214 040490 469250
467043
468464
468501
--------_ .. ...... _... - ... ---_ ......... _-
".

FEDERAL INCOME tAX UITHHELD 1,028.131.96 1,028,131.96 .00

2100 0003 TDU 010590 020 2 010490 .00 65,191.83 011090 011090 010890 011090 S 020001663 011090 459806
2100 0003 lDU 011090 020 13 011090 .DD 41,299.59 011190 0117'90 011290 01'790 S 020002119 011790 46OZ19
2100 0003 TDU 011990 020 26 011890 .00 82.203.58 012490 012490 012290 012490 S 020003083 012490 461288
2100 0003 TDU 020290 020 49 020190 .00 75,284.59 020790 020790 020590 020790 S 020005368 020790 464099
2100 0003 TDU 021690 020 74 021590 .00 78,368.94 022290 022290 022090 022290 S 020006703 022290 465534
2100 0003 TDU 030290 020 104 030690 .00 107,455.85 030790 030790 030590 030790 S 020008110 030790 4670-'3
2100 0003 IOU 031690 020 124 031690 .00 68.077.67 03Z290 032290 032090 032290 s 020009491 032290 468464
2100 0003 TOU 031990 020 127 032090 .00 1,254.78 032290 032290 032090 032290 S 020009511 032Z90 468501
2100 0003 lDU 033090 020 139 032990 .00 15,868.39 040490 040490 040290 040490 s 020010214 040490 469250
2100 0003 TDU 010590 028 3 010890 .00 3,2S9.59CR 010890 011090 S 020001663 011090 459806
2100 0003 TDU 011090 028 7 011390 .00 2,064.98CR 011290 011790 S 020002119 011790 460279
2100 0005 IDU 011990 028 13 012290 .00 4,110.18CR 01ZZ9O 01Z490 S 020003083 012490 461288
2100 0003 IDU 020290 028 23 020590 .00 3, 764.23CR 020590 020790 S 020005368 020790 464099
2100 0003 IDU 021690 028 33 022090 .00 3,918.45CR 022090 022290 S 020006703 022290 465534
2100 0003 lDU 030290 028 44 030790 .00 5,3n.79CR 030590 030790 S 020008110 030790 46~3
2100 0003 lDU 031690 028 53 032090 .00 3,403.88CR 032090 032290 s 020009491 032290 468464
2100 0003 TDU 031990 028 54 032190 .00 62.74CR 032090 032290 S 020009511 032290 468501
• 0003 lOU 033090 028 62 0Ii0290 .00 3,793.42CR 040290 040490 S 020010214 040490 469250
1--- 0003 IOU 010590 030 2 010890 61,932.24 .00 020001663 011090 459806
OOOl IOU 011090 030 6 011390 39,Z34.61 .00 020002119 011790 460279
2100 0003 TDU 011990 030 11 012290 78,O93.~O .00 020003083 012490 461288
2100 0003 lDU 020290 030 20 020590 11,520.36 .00 020005368 020190 464099
2100 0003 lDU 021690 030 30 022090 71,,450.49 .00 020006103 022290 465534
2100 0003 TDU 030290 030 41 0307VO 102,083.06 .00 020008110 0]0790 467043
2100 0003 lDU 031690 OlD 50 03209D 64,673.79 .DD 020009491 032290 468464
Z100 0003 lDU 031990 030 51 032190 1,192.04 .00 020009511 032290 468501
210D 0003 IDU 033090 030 59 040290 12,074.97 .00 020010214 040490 1.69250
Z100 0003 TOU 033190 030 69 041790 69.D2 .00 200011750 043090 470855
2100 000] TOU 033190 050 32 041190 .00 69.02 051590 052190 042690 043090 200011750 043090 470855
~--_..... -............ _. ... _----------_ ..
EMPLOYEE FICA TAX UITHHELO 565,323.98 565,323.98 _DO

2100 0004 TDU 010590 020 Z 010490 .00 65.200.33 011090 011090 010890 011090 S 0200D1663 011090 459806
2100 0004 rou 011090 02.0 13 011090 .00 41.299.57 011190 011790 011290 011190 5 020002"9 011190 460279
• 2100 0004 rou 011990 020 26 011890 .00 80,673.51 012490 012490 012290 D12490 S 020003083 012490 461288
~.. ..:
FD-301 (REV 3-1~2)
• - 1 -

FEDERAL BUREAU OF INVESTIGATION

--? /:J
1,/ -

Date or transcnphon -l..~2

________~pn the afternoon of July 26, 1991,1


~as
interviewed at the San Francisc~o~~o~f~f~1~c~e~~o~£~t~h~e~----
Federal Bureau of Investigation concerning his emploYment with
Hamilton Taft Company in San Francisco. I ~ provided
the following background information. He exhibited California
driver's license nUmbe~ I which showed his date of birth
to be
in
He 1nd1cated that he was at
116 and that his residence
r--------,.-~~~-_'l~"'I_~ is also known a
......~r----~~--_ ..
va unteere at he grad;;.;u_a_t.....e_d......f_r_o_m__......~......_ .... ....
r---~~w~~~C~h~1S an institution in the
s a e that he has the equivalent of a--",=,,",,=,--~---""""l""-
college degree in
accounting and that this is a four year school. He advised that
he would be considered a certified pUblic accountant in the
I I He stated that he became a united states
citizen in 1980 and that he began emplo ent with Hamilton Taft
corporation on December 12, 1988 as a and
his job title through February of 199 x
specialist. He worked close! with also
worked with a
I Iwas tne personne manager a
was the president of Hamilton Taf~t__.~ ~~~

b7C
his immediate supervisor was one
individuals who he was associate~~~--~~~
supervisory positions were I Iwho was the
supervisor of operations. Another supervisory person with whom-
I Iwas associated was a I I
With respect to his duties in the client correspondence
unit,1 . volunteered that he began working in the
correspondence unit in February of 19~9 and that he would handle
direct contact with representatives of two companies a~at he
would handle the correspondence with his two clients. l---J
I linterjected thatr I was in charge of all
operat~ons at Hamilton Taft.

At this point in time/l Iwas asked when he


first became aware that client checks were being held back at
Hamilton Taft. I Istated that he first became aware that

Inve'hgahon on 7/26/91 at San Francisco. californi~tle /I 196A-93255 SUB C - 4'2

by ~ I-------------~mly Date dictated 10/2/92

Thu document contains neither recommendatIons nor conclunons oC the FBI It u the property oC the PBl and 15 loaned to your agency,
11 and 11' contents are not to be d15lrlbuled out.51dc your agency
FD-302n (Rev 11-15-83)
• •
196A-93255

ContmuatIon ofFD-302 of J .-....------"on 7/26/91 J Page


- -2 - -

c1 ient checks were being held back in the latter part of .J ~!;.:. ,~.• ,,' ..

December, 1989, when a large number of complaints began coming


into HamiTton Taft with regard to payments not being made.
l Jstated that some of these complaints were actually
receiV~: ,rom the IRS and some were received from customers.
I _ ]Volunteered
that on January 2 1 1990, when complaints
were ma e, Hamilton Taft would get a copy of the check showing
payment was being made normally. This process would usually take
one to two days. On this occasion, the process took much longer.

Early in 1990,1 Istated that I I


changed the correspondence section at Hamilton Taft so that as of
this time all correspondence was handled only by thi
I correspondence unit which at this time CQDSiste1 of __ b7C:

I Istated that durinq the last ten days of 1989,


and the early days of 1990, J I no longer
received copies of the checks which were allegedly already paid
for client's tax bills. They were not given copies of these
checks any longer.
on 1990,1
Januar Ivo!unteered thatl ~
I Igave '--......
-..;;;a-......,list of over 100 clients with
lnstruct~ons for to pay any requests for payments
without question. toldL ~ot to ask him any
estions but just to pay any notice if it was on this list.
I ~ ltoldl Ithat there was a bank problemJnot further
: escrlbed. I Itoldl Jto tell any customers who
asked questions with respect to the~r payments not having been
made that there was a bank problem at Hamilton Taft.
______~~Istated that he first became aware of monies
being held back in November of 1990 when AL MAY told him that the
monies were being held back as MAY handedJ la list of
clients whose payments were delinquent and which had been held
back by Hamilton Taft. MAY toldl Ithat Hamilton Taft had
actually invested this money which had been held back. I ,
advised that during the first few days of JUly, 1990, AL MAY gave
him a second list of clients whose deposits were held back. MAY
told him that these clients were also a bank problem.
• •
" -
."FD-302a (Rev ll-IS-83)

196A-93255
b7C

Contmuatlon o1FD-30::Z 01 ~..... '--- , On 7/26/91 ,Page _ _3_ _

I Istated that he received a third list of


delinquent clients from AL MAY for six different dates on or
about September 20, 1990.

I I advised that in the middle of 1990 the first


shredder was brought to Hamilton Taft offices.
I Istated that when he would receive a demand
for a written explanation from a client regarding why a ijayment I
hadn't been received, I
Iwoul~ band the notice toL
who ope or two days later would handl la
letter signed by
I I to the client saying that there was a bank problem at
Hamilton Taft.
I I stated that there were several IRS employees
with whom Hamilton Taft regularly communicated and that these
Internal Revenue Service employees were attached to the Internal
Revenue Service Cynter in Ffesno, California, in the problem
re~olution unit. L. ," stated tha~ one ~f the emPIOy~eS in
b'/e th1S problem resolutlon unlt was namedL _" ,_ I
Another employee in this same unit was named and
I lstated that there were two other females with whom
HarnlltoD 1aft communicated, one of them being a woman named
I I
~ __~stated that in January or February of 1990,
~
~~ ~__~~~_s_e_n_t--a
__~l~i~s~t~of various Hamilton Taft clients via
faCS1mlle to at the IRS Service Center in Fresno,
california, with a cover letter asking the IRS to let Hamilton
Taft know how much in late payments and interest penalties were
due for these particular clients. I ~stated that~ I
responded by faxing a list of clients to Hamilton Taft listing
each com~any on the list which had been sent to the IRS by
I jWith a total owed to the IRS for each company including
taxes plus any interest penalties due.

In January of 1990:1> Istated that he was


instructed not to send a copy of correspondence between Hamilton
Taft and the IRS to Hamilton Taft's clients unless the Hamilton
Taft client as~or a copy of this correspondence. Af_t_e~r ~
September 20th of 1990, the date on Which AL MAY gavel la
third list of delinquent clients, I Itook it upon himself
to send the client a copy of all correspondene6 between Hamilton
....
r.O-302a (Rev 11-15-83)
• •
196A-93255

ContmuatlDn o!FD-302 of -J__------ f-------.on 7/26/91 • Page _4_

Taft and the IRS without letting the management of Hamilton Taft ~
know about it.

It should be noted that I Iprovided a number


of documents to the interviewing agent with respect to his b7C
interview of July 26, 1991. These documents are fourteen pages
in length. A copy of these documents is attached to and
considered part of this interview form.
Finally, a copy of a letter on Hamilton Tp~f~t~6~D~d~ ~
Company stationary dated June 24, 1991, assigned bYL~ ~
regarding penalties for late remittance of tax deposit
liabilities which is one page in length and a copy of an article
from the ~raDCisco Exam~ from June 3, 1991, were sent to
the writer byl Jin June of 1991 and are attached to
and considered a part of this interview form.
. 4\ _
Ji •


~~~Sf----~_
Angust 30. 1991

Murray Waldman, Esq.


Felchnan.. Waldman & Kline
235 Mont~omery Street
San FranClScot CA 94104
RE: INTERNAL REVENUE PENALTIES & INTEREST
Dear Murray:
As requested, we have analyzed Hamilton Taft's payments of interest and
penalties to the Internal Revenue Service.
The attacbed analysis details these payments, in alphabetical order by client
Should further information or supporting documents be needed, please
advise.
Cordially,
~

~einberg
President
Enclosure

cc: Frederick S. Wyle


Patricia S. Mar
("Lee S. Baly

One Market PJaza. Spear Street Tower. 32nd floor· San Francisco. California 94105
4151597-6500 800/231 ..2929 FAX 4151974-1755
, . '.,
PENS-IRS XLS

IHamlllon Tan & Company I 29-Aug-9t

)SchedUle or Penally and Interest Paid to IRS - Alpha Sort I


112/26/89 To Date I Note' Cheek' paid which are dated from 12/29189 to 2/13190 may
contaIn tax amounts along wtlh penalties & Intereal Thl. schedule only
""1 the penalty and Interest portion or auch ehecka.
Client C1lent Federar T•• Void Cheek T•• Date Check Penalty Inter. It Penalty & Int
Humber Name 10 Number Period ChGck# Amount Due Date PaJd Paid Totel
186 ABC MarkBt 95-2083645 3O-Sep-89 13402 S133,62293 23-Aug·8Q 19-Jan·90 1163 $2,00434 $3,10383 $5,108 17
186 ABC Mart<et 95-2083645 3O-Sep-89 13402 ditto diuto 2()-.Feb-90 1405 $1-',065 57 $000 $14,065 57
363 ABF FreIght Svstems Inc 7100249444 3O-Sep-89 13147 $1 ,48g,585 36 23-Aug-89 2J.Apr-90 99160 $98,82305 $49.213.79 $146,096 B4
363 ABF Freight System Ino. 71-02.'-9444 ~n-90 15393 $1.669,47321 16-May-9Q 23-Nov-90 932 $67,65645 $000 $87,85645
225 Action Instruments Co Inc ~2746736 3O-Sep-89 13317 $31,14732 23-Aua-89 19-.Jan-90 1154 $46720 $72350 $1,19070
225 Action Instruments Ca. Inc 95-2746736 3O-Sep-89 13311 ditto ditto 8-Mar·90 47 $3,27967 $000 $3,27867
225 Action tnstrumBnls Co. Inc. 95-2746736 3O-Sep·90 26982 $43,914 .. , 19-5ep-90 22-Feb-91 1193 $2,28517 $000 $2.28517
454 All Amer5can Gourmet 94-2957991 31·Mar-90 2230 $224,66062 1a.Jan-90 2-Nov-90 001 $12,282 09 $000 $12,28209
454 All American Gourmet. 94-2957991 3(hJun-90 14606 $238,79275 1D-MaV--90 'o-Deo·90 950 $12,568 04 $000 $12,568 04
0454 /oJ1 Amor1can Gourme' 94--2957991 3O--Jun-90 14606 dItto dItto 18-Jan-91 90 $000 $8817 $8817
454 All AmerIcan Gourme. 94-2957991 3O-Sel)-9O 21064 $151,285 58 19-5ep-90 31.Jan-91 1052 $8,150 37 so DO $8,'5037
1014Q.07 Allen Foam Corp, ~1Q8.4 3Q-Sep-89 13370 $2,94{ 39 23-Aug-89 19-.Jan-90 1138 $353 74 $6198 $41572
327 Amer. A!lsn af Crlrlcal Can, Nurse. 95-2706905 31·Mar-90 2165 527,72443 18-Jan-90 3..JuI-go 734 $1,45915 so 00 $1.459.15
343 America West Alrflnes 86--0418245 3O-SeP-89 13384 $500,35986 2J.-Aug-89 26-0ec-S9 1002 $90,37630 $000 $90.37530
343 America West Ah11nes 86-0418245 3O-Jun·90 14602 $6OO,359SS 1G-MBy-90 2&-Sep·90 837 $31,597.89 $000 $31,597.89
343 America West Airline, 86-0418245 3O-Sep-90 20253 $2,059,984 08 18-Ju1·90 B-Mar-91 1220 $109,027.60 $000 $109.027.60
543 American cancer Socfety 94-1170350 3O-Sep.89 133552 5126,911 34 23~Aug-89 22.Jan-90 1199 $1,269.11 $2,120 BO $3,38991
543 Amerlesn Cancer SocIety 94·1170350 ~Sep-89 1~ ditto ditto 23-Feb-90 1461 $16,079.11 $000 $16.079.11
543 AmerJean cancer Soetety 94-1170350 3O.Jun-90 16288 $148,nI92 31-May..go 13·Nov-90 913 $7,83000 $000 $7.83000
168 American Micro Systems 94-1624437 3O-Sep-89 13414 $149,21952 23-Aug-B9 2.2.Jan~90 1179 $2,238 29 $3,466 '2 $5,704.41
168 Amerlcan Micro Svsteme 94-1624437 3O-Sep.s9 13414 ditto ditto 23-Feb·90 1453 $i5.11385 $2368 $15,73753
340-08 AmerIcan Resldontlal Mortgage 95-3856571 3t-Mar-90 2229 $520,17044 ,8-Jan-90 23·Nov·90 930 $27,an 39 $000 $27,37739
520-01 Arundel Asphalt Pmduc1s 53-02.8617 :m-5ep-89 13349 $19,94492 23-Aug·89 22.Jan·90 1197 $199 45 $29057 $490 02
125 Associated Coin Amu!lement Co 94-1389495 »sep-89 13400 $4,186 as 23·Aug·e9 22..Jan-90 1203 $4187 $51.00 $10287
t25 A!soclaled Col" Amusement Co 94~138949S 3O-Sep-89 13400 ditto ditto 23-Feb-90 1450 $46165 $4647 $50812
10Q9.01 Alalia Corp (Tandem) 94·2221828 3O-Sep·89 13352 $53.11578 23·Aug·B9 22-Jan·90 1197 $1,41877 $000 $',41Sn
1009-01 Alalia Corp. (Tandem) 94-2221928 3O-Sep·B9 13362 ditto d,t1o 13-Feb~90 1378 $265'57 $3461T $611 74
1009-0. Atalla Corp (Tandem) 94-2.221828 3O-Sep'89 13362 dlt10 dItto T-Mar-go 44 $6,21260 rooo $6,21260

Page 1
.~

PENB-IRS XLS

IHamllton Taft &. Company I 29-Aug·91 .


,

ISchedure of Penalty and Inleresl Paid 10 IRS • Alpha Sort I


112/26/89 To Dale I Noto· Checkl paid which I,e dAted trom 12/29/89 to 2/13/90 ma,
conlaln tax emounla .Iong vwtlh penattle. & Intere!ll Thrs aehedute only
IIste the penalty Bnd Interliit portIon or luch eheck••

Client Cllont Fedo,al Tal( Vofd Cheek Tal( Dete Check Penlltv Inte,elt Pemllty&lnt
Number Name 10 Number Period Chei:k# Amount Due DRle Pard PaId Total
1009-01 Atalla Corp (Tandem) 94-2221828 3O-$ep-90 29026 $59,26023 19·5ep-go 8-Msr·91 1219 $3,098 55 $000 $3,09855


163 Atla8 Hotel, Inc 95-2052406 3O-Jun-90 1459B $308,95399 1o-May-90 2O-Nov-90 924 $31,39292 $000 $31,39292
559 Balcor Complny 36-3512671 JO.SeP-ag 13354 $565,75105 23-Aug-89 19-Jan·90 1168 SS,48626 $13,141.41 $21,6'Zl67
530 Bateman 8dl1er HIli ~hBrds 36--3183757 31·Mar-90 2233 $412,86199 16-Jan-90 7-Sep-90 794 $21,729 58 $000 $21,129 58
m Bateman EIchler HIli RIchards 35-3183751 3O-Jun-OO 15590 $217,99666 1B-MaY-90 2-Nov-90 900 $11,47351 $000 $11,413 51
548 Blue Cross & Btue Shield 01 Tx 75-0307640 3O-Sflp-89 13409 $931.58251 23-Aug-B9 1&-Jan·90 1121 $13.97373 $2 J,639 06 $35,612.79
548 Blue Croas & Blue ShIeld of Tx 75-0007640 3O-Sflp-69 13409 ditto ditto 28-Feb-90 1492 $99,06163 $000 $98,06163
548 Blue Cross & Blue Shield of Tx 75-0307&'10 3O-Sep-89 13409 ditto dlno 17·Apr·OO 99149 $000 S63041 $63041
548 Blue Cross & Blue Shield of Tx 75-0307640 3O-Sep-90 20272 $950,74714 1fh!ul·90 S-Mar-91 1214 $50,03933 $000 S50.03933
!500 Borg-Warner 95-3887956 31-Mar·90 2209 $537,87067 18-Jan.-90 2-Nov-90 897 $28.30895 $000 $28,3OB95
560 Borg-Warner 95-3887956 3O-Jun-90 14580 $1n,862"4 ,o-May-go 2'-Nov-SO 926 59,36118 $000 $9,361.18
560 BorgWamer 95-3887956 3O-Sep-90 20223 $585.74482 19-Jul-9[) 24.Jan..g1 102 S30,82868