But it will be, the review will be performed, under the terms of our requalification letter by independents, who will be retained by the fund for that purpose.

Mr. GIBBONS. As I understand what you have described to me here, the staff will be asked to review its own work, and to select out of its own work what it thinks is questionable.

Am I correct in that?

Mr. LURIE. Mr. Trainor will respond to that.

Mr. TRAINOR. We are not only going to look at the ones that they have selected for review by the independents, but we are going to look at the ones that they didn't select. We will be looking at both sides of the picture. It won't be just their judgment.

Mr. GIBBONS. So there will be an outside, independent look at it by the IRS at your highest regional level there.

Mr. LURIE. And I might add that I assume the Labor Department has not terminated its investigation as to whether or not there were improprieties or irregularities in these transactions.

Of course, there is this to be observed. Our review goes back to 1965. The Labor Department makes clear that its authority began January 1, 1975, so it is only those transactions that would have a dual scrutiny.

Mr. MIRIANI. There will be a complete review in-house, as well as a report on this review setting forth what they have done and what they have come up with by way of recommendations, which will ultimately go to the outside professionals and so on.

In our monitoring, we will have the whole file, including the original application, the terms of the loan, as well as the in-house report coming up with their conclusions, and that will be the basis for us to determine whether we agree that it should go to the outside independents, or whether one that has not gone to the outside independents should. So the file should be very complete when we go in and make our followup. Mr. GIBBONS. I am not worried about the files that are not-in other words, let's say they have all their loans numbered from 1 to ad infinitum, and they refer to your loans No. 15 and 25 and 46 and something like that.

How about all those loans in between. Will you look at all those?

Mr. MIRIANI. We will review all the loans and review the in-house determination and recommendation.

Mr. GIBBONS. If you are going to review them all, why ask them to review any of them?

Mr. MIRIANI. We are going to review their determination.

Mr. GIBBONS. You are going to also review the ones, I assume, that they make no mention of. Suppose they have one-if every office there is always some problem that everybody says, "Oh, this was a mess, forget about it."

Are you going to look at that kind of problem, too?

let's

Mr. MIRIANI. Yes, we are, and we expect the fund to come up with a position on their in-house review, also.

Mr. LURIE. I think it is also notable, or at least worthy of note that in the course of our examination of the fund we identified particular loan transactions that for one reason or another appear to warrant some further scrutiny.

We have identified those to the fund. The fund will specifically address those, so that it isn't as if we are in the position right now of awaiting whatever they will have come forward with.

Our own investigation has already identified a fair number of such transactions.

Mr. GIBBONS. Are these monthly reports that the fund is filing with you, are they public documents?

Mr. LURIE. You have asked a question that we have ourselves been considering. I think that while I could give you an answer, I think at this point to justify Mr. Keightley's having joined us at the table, I might defer to him to answer the question, since it is a legal question, and the analysis is one that chief counsel has provided to me.

So I think I will let counsel answer the question.

Mr. KEIGHTLEY. Simply put, in our opinion, they are a matter of public record. The reason for that is under code section 6104, these represent submissions by the plan in support of their application, and as a result these documents are public.

Mr. GIBBONS. Thank you.

Mr. Pickle?

Mr. LURIE. I would say, Mr. Chairman, that it is because of that decision that I have felt free to respond to some of your questions here this morning. I have been trying to confine my answers to matters that are contained in those reports, because of the determination that those reports and the contents of those reports are a matter of public record. Otherwise, we might have had to ask, as we did in March, for this hearing to go into executive session.

Mr. GIBBONS. Mr. Pickle?

Mr. PICKLE. Thank you, Mr. Chairman.

Mr. Lurie, when we last met with you, we were presented with this statement on principle, the statement on an agreement, that the IRS and Labor had forged with the fund's representatives. That agreement said that as of April 30, or prior to that date, that the fiduciary, the fund asset manager, would be the Crocker National Bank of California.

Some 2 months had gone by before a new statement was made saying that Crocker no longer was involved in it. I am not so interested in whether Crocker is or isn't involved in it; except that we had an agreement back before April 30, it never materialized and we heard nothing for 60 days.

What was the problem and why did that not materialize?

Mr. LURIE. Mr. Pickle, that is a question that I think you can best address to the Secretary of Labor or the Labor people who will be present, for the simple reason that we were not at all involved in those discussions.

We didn't participate in them. We were periodically advised as to the course of them, but I could not tell you myself as a matter of my own knowledge, and I doubt that anybody sitting at the table with me right now could answer your question as a matter of their own knowledge as to what problems materialized that made it impossible for Crocker, for example, to assume the responsibility.

I do want to point out that the agreement we spoke of when we were with you in March that had developed in the preceding several days and was consummated in a press release that we put out, didn't identify any given institution as the necessary party to fulfill the results that that agreement contemplated.

93-939-77- -5

Crocker was at that point, as I recall, one of the parties that was seriously under consideration and for a period of time, as I understand it, they were regarded as filling the role that ultimately Equitable filled; but the Service, for example, never imposed any conditions on the plan as to who we wanted to see as investment managers. Mr. PICKLE. Well, if there were not any agreement that Crocker was to handle it, what substance can we put, or what faith can we put on the agreement now that Equitable, or Palmieri would handle these funds?

What is the difference between the agreement then and now?

Mr. LURIE. Quite a bit of difference, Congressman Pickle. According to the monthly report that has been furnished, a definite, signed agreement has been entered into between the fund and Equitable and Palmieri under the date, as our report indicates, of July 7.

Mr. PICKLE. What is the date of the agreement?

Mr. LURIE. Have you got the June monthly report?

Mr. MIRIANI. Yes.

Mr. LURIE. According to the report, on July 7-and the report is dated July 8, 1977, and I am reading from it-on page 5 of that report, the statement appears:

On July 7, 1977, the trustees executed investment management agreements with each of the following appointed investment managers: Equitable Life Assurance Society of the United States, Victor Palmieri, Lazard Freres, Mercantile National Bank and Crocker Management.

Mr. PICKLE. Effective as of July 7?

Mr. LURIE. June 7-no, July 7.

Mr. PICKLE. These firms have a responsibility to carry out the investment management?

Mr. LURIE. The contracts were signed on that day.

Reading again, and this report carries the signature of Daniel Shannon. "Pursuant to those several agreements," that I have just referred to "and since the execution thereof on July 7, 1977, the securities related assets and at least a majority of the real estate assets have been and are available to the several investment managers for inspection, documentation, and evaluation. The several agreements recite a closing date of September 1, 1977," which the report goes on to state, is subject to further postponement for certain rulings.

So as of this moment, Equitable is not acting as an investment manager of these assets. This is an executory contract that is signed for which the closing has now been specified as September 1.

Mr. PICKLE. Then we have a vacuum as to specific responsibility between now and the September date. We have 60 to 90 days where we are not certain who is going to manage what; is that correct?

Mr. LURIE. Well, to say we are not certain, I guess we would be able to know and you would be able to find out who is now managing these assets. For example, there has been testimony before you, as I understand it, as to a group of banks and investment bankers who presently each hold some $75 million of assets of the fund; so that outside of the real estate assets, which, of course, is the major portion of the portfolio, these assets are presently in the hands of professional investment managers.

Mr. PICKLE. Mr. Lurie, along that line, and I want to come back to your letter of revocation in a minute, but to update your comments,

now, the Washington Post this morning said the fund's fiduciary "is now" the Equitable Life Assurance Society of the United States, so it becomes important to determine just how much control Equitable has.

If there were a property which needed to be foreclosed or a good offer made on the property, and this happened today, who would handle the matter? Would Equitable handle it, or would the fund? Would Equitable have recourse to stop the transaction if they wanted to?

Would it be possible for them not to know of such a transaction until it had already occurred? Where is the responsibility if something like this did occur?

Mr. LURIE. Well, I would like to give you my own personal opinion, and I really should refrain from even doing that, because I am not in any way a party, and was not involved in these contracts, and have only a very-at the moment-a superficial knowledge of the contracts themselves; but, certainly, from what I have read, if these contracts were executory, if anything occurred today, it would not be Equitable that would take the appropriate actions.

That would be my opinion, but I think that you ought to address those questions either to the fund or to the representatives of the Labor Department who probably could give you a more accurate and more expert response.

Mr. PICKLE. Well, we will ask the Labor Department. It seems to me like on the surface, it would appear that the situation to date is much the same as it was back in April, April 25, that we had an agreement to take a certain course, and now we say we have a different agreement.

Though you tell me you have a signed contract, I still don't know where the responsibility lies within that contract.

Mr. LURIE. If we felt the situation were much the same as it was in March and April, we would not have today presented to you a requalification of this plan. It is because we accept the appropriateness of those agreements, and because they provide reasonable assurance, as well as contracts with responsible parties, that these funds will be under professional management that we have felt able to requalify. Mr. PICKLE. I still don't understand just yet why you issued the letter or requalification, or statement of requalification prior to the specific agreement that must be reached and has not been reached yet.

You have done it, and I rather suspect that that is one of the agreements you gave in order to get the four people to resign. That is just a personal opinion.

I am concerned, though, that your letter-your statement of revocation, or, rather, your letter of June 25, 1976, seemed to be very specific, that Mr. Miriani issued.

I would like for you to state in some detail what you have asked the fund to do to rectify the first six reasons listed in the June 25 letter. For instance, one statement is that-you list the six strong reasons why this fund should be-the tax exempt status should be removed. One statement says:

Contributions owing to the fund by participating employers were forgiven to the detriment of plan participants.

And yet, Mr. Shannon has stated in his testimony:

Oh, let me say here that no participant has suffered the loss of his pension rights as the result of an employer's failure to make contributions, whether that failure is caused by delinquency, bankruptcy proceedings, or terminations of business or any other action.

Now, they are not in direct conflict, but it seems to me like you gave six strong statements in this area, and yet they are subject to some question now.

Mr. Miriani?

Mr. TRAINOR. We are talking to counsel, Congressman. We thought we had a disclosure situation here. We think we have an answer that we can discuss with you in general terms.

Your last question, I am not sure you heard.

Mr. MIRIANI. I didn't hear your last question, because I was trying to see if we could give you a more definitive answer with respect to your previous question, Congressman Pickle, as to what happens between now and

Mr. PICKLE. What do you want to comment on ?

Mr. MIRIANI. I would like to comment on what is going to happen between now and September, if I may, in a general way.

As Mr. Lurie indicated, the Department of Labor can give you more specifics, but let me say for the past year or 15 months, the Fund has agreed to not make any new loans, and we have been there monitoring. The indications that we have seen this past year indicate that there have been good faith efforts made with respect to new money that is coming in to the effect that they are going to invest them with banks for short-term security and so on. With what we have seen in the past year, or a little over a year, we don't have any concern about the fact that we may get into some more of the same kind of situations as in the past between now and when the new money managers take over on September 1.

So we feel that we have, by monitoring, and also by their commitment, recourse to protect what is coming into the fund between now and when the active managers come in in full force.

Mr. PICKLE. I would assume that you do have safeguards, and that we are further along then we were in April. All I am trying to establish is, where is the responsibility? What authority do you have that was different from what we had back in April? That is what I think the committee is trying to establish, and I presume that we are further along, but I don't know how much stronger our agreement, or your contract, is now than what you had back in April.

You had a press release that said it was your agreement and now have a contract.

you

Mr. MIRIANI. I think these questions, if you will, Congressman, will be appropriately answered by the Department of Labor, which is more familiar with the contracts. We have made our input into the contract, but I think we are getting into an area

Mr. PICKLE. Well, the trust fund has been given the authority in the last 60 days to place about $150 million in the hands of money managers of their choice, and they were given this right after they had agreed to allow an independent managing fiduciary to manage all the

assets.