Summary 2/11/02

1. An $88 MM amount representing the asset writedown of Sun Ship assets to $10 MM.  That amount was improper, as has been long alleged, and as confirmed by 1995 Senate testimony.

2. An amount of $120/140 MM was paid out for some still undisclosed purpose There are strong reasons to believe that sum went to either illegal covert purposes or private gain (or both).

3. An amount of about $10/20 MM which was proper for health claims, employee severance, and community balm in the face of the discontinued operation under which the huge improper loss reserve was established.

The phony loss reserve resulted in the immediate tax avoidance for Sun of $108 MM which made nil the cash cost to Sun of disbursing the $120/140 MM.  The phony loss reserve was a violation of SEC and tax laws.

In the early '80s countless complaints were lodged with local SEC and DOJ agencies to no avail.   Complaints were then lodged with State agencies and national enforcement agencies again to no avail.  Assistance was sought from local, state and national elected officials, notable among them Senators Heinz and Specter.

In the meantime, Sun announced the intended sale of the Sun Ship assets to Ed Paden, with Sun's Chairman touting his attributes.  All of those attributes have proven to be false.

Paden was then the President of Levingston, a Texas shipyard.  It has turned out that Paden acquired Levingston in 1980 for no money (a feat repeated with Sun) but in the Levingston case an unidentified benefactor contributed $13 MM to the purchase, taking bearer bonds as security, and disappearing, without repayment prior to a Levingston declared bankruptcy in August 1985.

The Sun sale to Paden was a sham.  In testimony in an unrelated case Paden has stated that Sun offered to sell him the shipyard for no money.  We estimate the Sun Ship assets at $100 MM.  In 1985 these same assets, illegally written down to $10 MM by Sun, were appraised at $69.4 MM to the Navy in documents accompanying a secret Trust Indenture offered to the Navy by Pennsylvania Shipbuilding Company (PSC) and Fidelity Bank (now Wachovia Bank).

In February 1982 the Sun asset sale to Paden closed and the yard was renamed PSC.  The assets comprised some 200 acres of industrial waterfront real estate, personal property, a heavy lift derrick (classed as a ship) built to construct the Hughes Glomar Explorer, and a new, then the largest, floating drydock in the country.  In the sham sale Sun took an $8 MM mortgage on the real estate, personal property and the derrick and a $10 MM security instrument on the drydock.  There was no intention of repayment.  Indeed, the sale agreement even provided for Sun reimbursement of interest payments on the $18 MM while Paden completed construction contracts for Sun (with risk in those contracts retained by Sun).

The false representation of Paden as a new and independent owner enabled Sun to avoid a new union contract negotiation which would have been contentious because of an arbitration decision against Sun for subcontracting entire contracts to other yards.  The arbitrator required Sun to pay full wages and benefits to 1543 employees until contract expiration whether or not there was work for those employees.

In 1984 a group of purported 'industrial real estate developers' from Mobile, AL allegedly purchased 52 % control of the shipyard assets in Chester.  This was done for cents on the dollar. Why anyone would relinquish some $100 million in assets for nothing is highly suspect.  The vehicle used was a company named City Capital Corporation which had been incorporated, along with three other identical but differently named companies, all on 11/12/80, a week after the 1980 election of Ronald Reagan.  It appears that this caper began in the Republican campaign before the election.

On 5/6/85 the Mobile, AL group won a major Navy contract through fraud.  The details of that are readily available in Philadelphia Federal District Court, case 94-7316, a matter under seal from 1992 until mid-October 1998 when unsealed and served.  The false 1980 writedown to $10 MM is one key component of that fraud.  Another is a secret Trust Indenture, which purported to be for the Navy's benefit but in reality, through its fraudulent provisions and improper existence, proved to be just the opposite.  This contract caper blossomed into the largest fraud in Navy history, over half a billion dollars having been spent for two ships never completed and now rusting hulks worth only some $2 million in scrap.

A year after the contract award, in 1986 an improper $10 MM loan was made by the Pennsylvania Water Facilities Loan Board to PSC, funneled through a Delaware County single purpose agency for that purpose chaired by Congressman Weldon.  A second loan for $3 MM was made in 1987.   The State is now left holding the bag as reported in the Inquirer on 4/13/01.  In connection with the 1986 WFLB loan the first, and only, payment to Sun of principal ($976,000) for the asset sale was made.  That was one year after the Navy contract award.  The State assumed a first mortgage on all the real estate.  At the same time Sun agreed to accept $9.5 MM as repayment in full of the $18 MM purported debt.  PSC purportedly agreed to a schedule of payment on the reduced remainder.  By 12/21/88 unpaid principal and interest had ballooned to $18.3 MM at which time Sun relinquished its security in the drydock, forgave the $18.3 MM in debt in exchange for a new note for $4 MM secured by 3rd and 4th real estate mortgages of questionable security.  The purpose of the drydock relinquishment was to permit PSC to offer that asset to the Navy to get an improper advance of up to $17 MM.

Over time there has been   1) a year-long DOD-IG Audit whose formal report confirmed an improper contract award, hid its Sun underpinnings, and attested to its own audit failure, and   2) in 1995 a Senate investigation with two days of hearings.  The Senate published a transcript but offered no conclusions.  One of the newest and finest shipyards has been looted for private gain, the Navy has been defrauded of half a billion dollars, law enforcement has been subverted, and worst of all the city of Chester is a basket case, all with no one held accountable.