FRANKFORT, Ky. - The head of Kentucky's housing authority testified in federal court on Friday that he told investment firms to give $25,000 apiece to Martha Layne Collins' campaign for governor if they wanted "a level playing field.
Lynn Luallen, executive director of the Kentucky Housing Corp., said he made the requests to eight securities dealers shortly before Collins was elected governor in December 1983. But the solicitation was not part of a conspiracy to direct bond contracts in exchange for political donations, nor did he have a role in any such conspiracy, he said.
Luallen said he was directed by Bill Collins, Martha Layne Collins husband, and Lester Thompson to solicit the contributions.
Bill Collins was the chief fundraiser for his wife's campaign. Thompson,then a businessman and close friend of Bill Collins, was another key fund-raiser. He was named state finance secretary shortly after Martha Layne Collins became governor in December 1983.
Luallen said on Friday that the firms to be contacted were Donaldson. Lufkin & Jenrette Securities Corp.; Merrill Lynch & Co.: Paine-Webber Inc.; Kidder, Peabody & Co.; Lehman Brothers; and Dean Witter Reynolds Inc.; E.F. Hutton & Co.; and Goldman, Sachs & Co.
Luallen said that at the time he was asked to make the solicitations, Thompson also inquired whether he was interested in returning to the housing agency if Martha Layne Collins won the election.
Luallen first served as the housing authority's executive director between 1976 and 1980. He was rehired in January 1984 by the Collins administration and served until 1988. In 1992, Luallen returned to the agency as executive director following the election of the current governor, Brereton Jones.
The official's testimony came during the 15th day of the federal extortion trial of Bill Collins overseen by U.S. District Court Judge Joseph M. Hood.
Bill Collins is accused of forcing two investment firms, Donaldson Lufkin and Cranston Securities, to ante up a total of more than $1 million for political donations and horse partnerships in exchange for state bond contracts. No one else has been charged in the case.
Luallen said that although he was aware that Bill Collins and Thompson were soliciting horse partnership investments, he played no part in any conspiracy involving bond contracts.
~It's a Lie'
Earlier in the trial, Thompson testified that Luallen was the primary link between investment bankers and Bill Collins. Thompson maintained that Collins and Luallen organized the plot to provide themselves with retirement income.
"It's a lie," Luallen said Friday of that testimony.
Luallen also denied Thompson's contention that he had helped handle the details of a purchase by Donaldson of a $35.000 grand piano. The piano was presented as a Christmas gift to Martha Layne Collins in 1984.
"I did inform an official of an investment banking firm that donations would be sought for the purchase of a piano for the Governor's Mansion," Luallen said in a statement distributed to reporters on Friday. "I believed that other businesses were being solicited and that this was a legitimate fundraising effort. I did not personally seek contributions for the piano."
Luallen said that when he asked Donaldson senior vice president William Johnston for the $25,000 campaign donation, Johnston asked, "What do I get?"
Luallen said he then directed Johnston to make such inquiries to Bill Collins and Thompson.
In October 1983, Luallen said, Johnston and another Donaldson banker, co-head of public finance Joseph Harcum, came to Kentucky to meet with Bill Collins and Thompson.
Although Luallen said he helped arrange the meeting and brought the two bankers to Collins' office, he was not present at the meeting.
Donaldson executives and the firm later contributed at least $25,000 to the election campaign or inaugural celebration of Martha Layne Collins, according to court documents.
Luallen said he did not participate in the decision to award Donaldson the position of lead manager for a $300 million Kentucky Turnpike bond issue that was sold in April 1984.
He said he was part of the decision to award the bookrunning slot to Donaldson for a $100 million Kentucky Housing Corp. issue sold in November 1984, but said Thompson. as secretary of finance, made the final decision on the award.
Donaldson also served as lead manager on a Kentucky Housing Corp. financing sold in December 1985.
Eight investment brankers at Donaldson eventually bought a total of $1.2 million in partnerships in 1984 and 1985. Two Cranston Securities executives purchased a total of $450.000.
In a letter from Luallen to Bill Collins introduced by the prosecution as evidence, the housing official wrote of a prospective meeting in New York City between Harcum and Johnston and Bill Collins.
The letter, dated May 10, 1984, also thanks Bill Collins for providing Harcum and Johnston with a box during the 1985 Kentucky Derby.
Visits From Collins
In other testimony on Thursday. investment bankers working for Donaldson during 1984 and 1985 said that Bill Collins had come to the firm's offices in New York City on at least two occasions to oversee the sale of horse partnerships.
James A. Cooper, a senior vice president with Donaldson since June 1984, described meeting with Bill Collins in a conference room at the firm's lower Broadway headquarters office in October 1984.
Cooper said he committed himself to a $50,000 investment in Partnership No. 2 that day, after being urged to buy into the partnership by Johnston.
Ira A. McGown, another witness, described in similar meeting in late 1985. McGown, then a senior vice president at Donaldson, said Bill Collins came to New York to oversee sales of Partnership No. 3 shares to Donaldson bankers.
McGown said he made his $50,000 investment in the Horse Partnership No. 3 at his own initiative after seeing a picture of a horse in Harcum's office.
But McGown said that he was encouraged to buy the partnership to help the firm in its efforts to win further business in Kentucky.
"Kentucky had awarded bond financings to Donaldson - and the feeling was that it was a good idea to reciprocate." McGown said.
In testimony on Wednesday. other Donaldson officials provided further details of how the company covered the expenses of $500,000 of horse partnerships bought by four other executives: John S. Chalsty, then chairman of the firm's Capital Markets Group; Johnston: Harcum: and Benedict T. Marino, co-head of public finance.
These arrangements were discussed in general terms during Chalsty's testimony on Tuesday.
According to Michael A. Boyd, Donaldson's general counsel, officials at the firm had at first arranged that the firm itself would purchase the units in Horse Partnership No. 2.
As part of this plan, Boyd said Tuesday, the firm sent a $50,000 check to Collins Investments in October 1984.
Shortly thereafter, he said, Donaldson got its $50,000 back and decided that the four executives would make the investments.
Later. after a meeting in April 1986 between Chalsty and Jerry Roland, the Capital Markets Group's chief financial officer, the company decided to forgive interest-free loans extended to the executives to cover the costs of the investments, according to court documents.
Roland testified Wednesday that the firm made the interest-free loans to each participant with the stipulation that the executives declare them on their income tax forms.
The loans, Roland said, "were viewed as a perk." He added, "To get good people, sometimes it is necessary to make such arrangements."
On Friday, Hood announced that because he must attend a conference in North Carolina this week, the trial would reconvene on Sept. 13.
