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Friday, December 20, 1996
Jilted partner asks fees from RF&P
Charles E. Smith Cos. seeking $10 million
BY JEFF E. SCHAPIRO
Times-Dispatch Staff Writer
Less than three weeks after the deal was closed, the sale of RF&P Corp. has come back to haunt the Virginia Retirement System - perhaps to the tune of $10 million.
Charles E. Smith Cos. says that's what the $24 billion pension fund owes the Washington real estate giant in legal fees and other expenses for reneging on a RF&P-Smith partnership.
The anticipated union was thwarted by the last-minute cash sale of RF&P to Lazard Freres & Co. The $557 million deal, announced in mid-October, was sealed Dec. 2 in Washington.
The sale freed VRS of its most controversial asset, a railroad-turned-real estate company that was a political and legal lightning rod even though it comprised less than 5 percent of fund's holdings.
VRS pays monthly pensions to more than 80,000 retired public employees. The system is supported by contributions from state and local government and more than 200,000 teachers, judges, police employees and bureaucrats.
VRS said a letter of intent it signed with Smith in July requires they divide the legal bills from the planning of their marriage. But VRS investment chief Erwin H. Will Jr. said the Smith figure was excessive.
"That's in the realm of the ridiculous," he said. Will went on to say that VRS probably owes Smith "something . . . but that we don't know the magnitude of it."
John M. Kurtz, vice president of marketing for Smith, declined comment on his company's claim, which was disclosed yesterday to the nine-member VRS board of trustees.
It could not be determined whether the demand was the first step toward a possible lawsuit or merely saber rattling by Smith to exact a hefty sum from the retirement fund.
Alan C. Goolsby III, a lawyer who advised VRS on the sale of RF&P, declined to comment.
According to Will and other VRS officials, the fund shouldn't pay Smith if the firm enters partnerships with Lazard allowing Smith to recover the disputed fees and then some.
For VRS, fees from the sale of RF&P to Lazard are "roughly" $5 million, said Will. Nearly half that amount, about $2.2 million, is going to the fund's adviser, Lehman Bros.
The rest covers lawyers' bills and disputed bonuses to RF&P staff. The cash awards, worth about $500,000, were first earmarked for RF&P executives, but were later distributed to all employees.
Under the retirement fund's agreement with Lazard, VRS must absorb outstanding expenses from the collapsed deal with Smith and possible claims against RF&P dating to state ownership of the firm.
That could include more than $1 million in disputed legal fees amassed by three former VRS officials who came under federal scrutiny during a criminal investigation of the state takeover of RF&P.
Attorney General James S. Gilmore III has ruled that taxpayers are not responsible for paying the lawyers' bills, even though they were run up by two trustees and a director carrying out government business.