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
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
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
"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
"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
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
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
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
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."
Copyright 1997 All Rights Reserved Dylan Foley
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