Scientology Allegations and a Real Estate Stock Flotation

The New York Observer
September 29, 1997

Scientology Allegations and a Real Estate Stock Flotation

By Dylan Foley

        Feldman Equities, a medium-sized midtown real estate management firm is set for a $290 million stock offering in late September, with heavyhitting investors that includes G.E. Capital and Morgan Stanley. This flotation may be marred by an impending religious and employment discrimination lawsuit charging that company CEO Lawrence Feldman forced employees at the firm to take Scientology courses and fired those who refused.
        According to papers filed with the Equal Employment Opportunity Commission in April, Karen Schwartz, a 38-old former property manager at Feldman Equities, was forced to take Scientology courses for six years. When she stopped taking courses, she was eventually terminated.
       Schwartz started working as a receptionist for a Long Island real estate office owned by Feldman in 1986. In 1989, she was moved to the Manhattan office and promoted to assistant property manager. She was informed by Feldman that it was necessary for her to take training courses three nights a week that the company would pay for. Schwartz was sent down to a now-defunct Scientology Center on Varick Street.

Clucking chickens and e-meters

        Schwartz, a practicing Catholic, described the "business courses" as disturbing and upsetting. Her experiences ranged from hearing students in the next room clucking like chickens to being forced to use the e-meter, a Scientology tool that allegedly helps people "clear" out the remains of the past lives they have lived.
       According to a lawsuit to be filed in October, when Schwartz criticized the classes at work, Feldman told her in private that she would have to recant her criticisms in front of her co-workers and that he planned to organize his company along the teachings of the Church of Scientology.
        Schwartz said she studied at Scientology centers against her will from 1989 to 1993. In 1993, Feldman started having courses in the office for most staff members, with mandatory attendance. In 1995, Schwartz stopped attending these classes. In May 1996, she took maternity leave and worked from home for the months she was out of the office. She was fired on her return, and was informed despite glowing work evaluations that things "were not working out." She was offered a severance package if she waived the right to future legal recourse. She refused and hired a lawyer.
       In April, Mary Wright, Schwartz's lawyer, filed a complaint with the Equal Employment Opportunity Commission in April, claiming that Schwartz had suffered religious and employment discrimination. After the EEOC finishes its investigation of the charges in October, Wright plans to file a $24.1 million lawsuit on Schwartz's behalf against Feldman Equities.
        "Feldman's lawyers are going to argue that the courses are not religious in nature," said Wright, of the firm Schierberl and Wright. "But the fact is everything Karen learned came out of the Scientology Handbook, the bible of the Church of Scientology."
        In May, when questioned about the EEOC complaint, Lawrence Feldman refused comment. "I am not going to comment on this until I establish who you are, who is behind this and if you are a real person." he said to a reporter.
        Last week, Feldman characterized Schwartz's allegations as "strictly an abuse of the legal system for monetary gain.
        "I am a member of the Church of Scientology," said Feldman, "as are millions of other people worldwide. I would not, and did not attempt to force my religious beliefs on anyone inside or outside of my office."
        The real estate company is being defended against the discrimination charges by the law firm of Rabinowitz, Boudin, Standard, Krinsky and Lieberman. This firm also represented the Church of Scientology in their legal battle with the Internal Revenue Service for tax exemption as a religious organization. The Church won tax exemption in 1993.
       Feldman Equities is a 12-year-old real estate firm with its headquarters at 120 W. 45th St., in Tower 45, a 40-story building that the company developed in the late 1980s. The company owns 2.9 million square feet of office space between New York, Florida and Arizona. In New York, the company owns four buildings in Manhattan and property on Long Island.
      After the stock offering, Feldman Equities will be reincorporated as Tower Realty Trust, Inc. The 10.1 million-share offering is being underwritten by Merrill Lynch, Prudential Securities, Smith Barney and Legg Mason Wood Walker. A spokesman for Legg Mason said the initial-public offering for Tower Realty Trust would be in late September or early October.
       According to Feldman Equities' 238-page filing with the Securities and Exchange Commission for its IPO, the investors in its previous projects include the Carlyle Group and G.E. Capital. The Carlyle Group is a virtual directory of former government officials, with Frank Carlucci, Bush's former National Security Advisor, as president, and former Secretary of State James Baker III being on its board of directors. The $1.3 billion investment bank has international stakes ranging from defense industry holdings to the commercial real estate joint ventures it has with Feldman Equities in Arizona.
        The SEC filing lists Morgan Stanley Asset Management as a principal stockholder in the new real estate management trust. The filing also states that G.E. Capital and DRA Advisors, a small investment firm, will be stockholders.
       "It is not appropriate for me to comment at all," said Gary Stevens, head of the Carlyle Group's real estate section in Washington, D.C., on whether his firm will invest in Tower Realty Trust. "Security laws make investment firms very cautious, as I'm sure you understand."
       The spokesman for G.E. Capital, the investment wing of General Electric, did not return repeated phonecalls by The Observer.

'Falling trees and a leasing disaster'

        "In my dealings with them, Feldman Equities is a sophisticated, mid-sized real estate player," said John Mechanic, head of the real estate department of the tony law firm Fried, Frank, Harris, Shriver and Jacobson. "They own some pretty good assets and are trying to access the public market for additional capital to expand. Right now, there is a sense that real estate is undervalued, the value of the assets are going up, and that there is low-cost money available for investment."
        An investment banker who insisted on anonymity had a different view. "Feldman Equities hasn't done much since Tower 45, their disaster-plagued project. It was a leasing disaster, trees fell off the building and it was in a poor location.
        "I'd say Feldman Equities is in the lower-third tier in the real estate market, and relatively unheard of in New York. They don't have access to capital, but obviously this will change if they complete this IPO."
        Looking at the underwriters for the Tower IPO, the banker said, "Prudential gets some of the worst deals and Legg Mason takes what it can get. With Smith Barney involved, this is a retail distribution. They are going to sell to individual investors who don't know any better."
        In an interview with Karen Schwartz, the future plaintiff against Feldman, she painted a picture of a tense office full of people afraid of losing their jobs in the bleak real estate market of the early '90s, and under constant pressure to take Scientology courses.
       "There were 40 people in the New York office and everyone was required to take the Scientology courses," said Schwartz, "except the security guards and day porters.
        "In 1993, the mandatory seminars in the office started. A memo would be sent around every couple of months. The seminars would take place from 8 a.m. to 1 p.m." According to Schwartz, Feldman said that raises and promotions would be based on "statistics." "There was this Scientology course, 'Management by Statistics' where everything is done by graphs," she said. "How many pieces of paper you filed in a month was a graph. The people who wanted to impress Larry would put their graphs over their desks. Larry would say, 'Oh, look at that graph,' and everybody would have to give a little 'golf clap' of appreciation."

At each other throats

        "There was constant stress, with people at each other's throats. People were under pressure to take courses when they were already overloaded with work," she said.
        In March 1993, Diana Featherstone was hired as vice president of administration. In an affidavit submitted to the EEOC, she said that Feldman told her of his plan to have all staff take courses based on Scientology principles. Featherstone said she objected, saying the courses were religious in nature. Feldman sent out a memo saying the courses were mandatory. Featherstone said she was responsible for scheduling the courses with the Scientologist instructors and taking attendance. Featherstone was fired in September 1993 when it was discovered she was looking for another job.
       Over time, the pressure got worse, Schwartz said. "A Scientologist was hired as a computer technician, but he also taught the classes after hours," said Schwartz. "He was like Larry's right arm. If he didn't like you, Larry didn't like you. The Scientologist disliked me -- he knew how I felt about the courses."
        "A lot of people are afraid even to talk about Scientology," said Schwartz. "I know that people were fired for not taking the courses and office managers were fired for not promoting Scientology."
        Responding to Schwartz's charges, Larry Feldman said, "No one, including Mrs. Schwartz, was ever forced or coerced into taking a Scientology religious course."
        Feldman said that his company used a management consulting firm whose methods were developed by L. Ron Hubbard, the Church of Scientology founder, but "these methods are purely secular and business related." Feldman said that only he and two other members of his 68-person staff are Scientologists.
        "The last time Mrs. Schwartz took a course involving Hubbard management methods was in 1989," said Feldman. "The course she took was 'Management by Statistics,' which in no way involves any religious issue whatsoever."
        Schwartz was last approached about taking another Hubbard management course in 1993, said Feldman. She refused. In 1995, she was still promoted to regional property manager and given a raise, he said.
        He dismissed Featherstone's accusations by saying, "It was well known at the time that Featherstone had a close, personal relationship with Karen Schwartz."
        Feldman said that Schwartz was terminated because she wanted to receive a full-time salary for working only two days a week after she returned from maternity leave and she was "grossly insubordinate" to her supervisor.
        Scientology trainings have received press attention before. In 1995, the Allstate Insurance Company gained much negative publicity when it was revealed that Scientology training courses were being taken by its regional managers. Among the management techniques urged was proactive efforts to torment and hound underproductive insurance sales agents out of their jobs. Allstate has allegedly stopped using the Scientology trainings.
       Referring to her former boss, Karen Schwartz said,"Larry Feldman really believes in Scientology. He feels that he could have an amazing empire by making people Scientologists. He wanted it embedded in their brains -- not just to take courses, but to know it, learn it, use it."

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The New York Observer September 29, 1997