Corporation Gave Cash to Wrights, Report Says : Panel Finds Venture With Ft. Worth Developer Was Not Legitimate, Served as Vehicle for Gifts

On the surface, the real estate and securities venture that House Speaker Jim Wright and his wife formed with Ft. Worth developer George A. Mallick Jr. seemed nondescript enough. Mallick once portrayed it to congressional investigators as “a little investment club.”

But a report to the House Ethics Committee says that Mallightco Inc.--as the corporation was known--was anything but ordinary. Mallightco lent money to the Wrights at below-market interest rates, the report alleged Monday. It provided them with cash gifts and forgave some of the interest they owed. And it employed Wright’s wife, Betty, for services that now seem to be difficult to document.

Questions Firm’s Purpose

“Mallick simply did not treat Mallightco as a serious business, but willfully neglected to follow the requirements of the law,” the document says. Rather, the report says, the firm “was designed and used to give cash to the Wrights and not as a legitimate business venture for both families.”

As evidence of this, the investigation by the committee’s special counsel found that the company was in trouble almost from its start. It repeatedly failed to pay its income taxes until tax agents seized its bank accounts. It used questionable accounting procedures. And it borrowed heavily to buy stocks on credit.

According to the report, Mallick and his wife, Marlene, joined with the Wrights to form the company in August, 1979. The Mallicks contributed $58,127 in cash. Wright threw in marketable securities that he listed as worth $58,127.

Real Estate and Securities

The corporation was organized for acquiring and developing real estate and for buying and selling securities. Mallick testified that Mallightco would actively seek out potential investments and put money into more promising ventures. Betty Wright served as vice president.

However, the report shows that by the time Wright sold his share in the firm in June of 1988, the Wrights had done more than merely make a handsome profit.

Instead, it said:

--The company granted Betty Wright a $75,000 loan at below-market interest rates--consistently charging her 13.5% when bank rates soared as high as 20.5%--resulting in $5,301 of savings over what she would have had to pay a bank. And Marlene Mallick used her own credit to obtain a large unsecured loan for Betty Wright that she “could not have obtained . . . on her own.”

At the end of 1986, the report said, Betty Wright owed Mallightco $48,700 on the outstanding promissory note. Last June, the Wrights paid off all debts and accrued interest to Mallightco, writing an $81,821.70 check after receiving $350,000 from the Mallicks in a buyout of the Wrights’ Mallightco stock.

The Wrights wound up with about a $210,000 profit after the 1988 stock buyout. The report also suggested that the firm may have misvalued the stock when it completed the transaction.

--Mallightco made “numerous gifts” to Wright during 1981, 1982 and 1984 when Wright failed to repay a $75,000 loan on which he received a reduced interest rate. Acceptance of the special interest rate amounted to receiving a gift from the company, the report concluded.

--Mallightco forgave some $12,678 of interest on the Wrights’ loans when it bought out their interest.

--Although other witnesses the ethics panel interviewed confirmed that Betty Wright had done some work for Mallightco when she was employed as a consultant to the firm, the panel found relatively little documentation that her work justified her $18,000 yearly salary.

Passive Investors

The report showed the Wrights largely as passive investors who did not take an active part in investment decisions. It said records indicated that George Mallick did not own any shares, but that Marlene Mallick owned 50,000 shares in the firm and the Wrights had 25,000 shares each.

To be sure, the Ethics Committee report conceded that not all of the firm’s transactions constituted violations of House rules on the part of the Speaker. And it admitted that in many cases it still had no firm answers to its questions; information was not always available.

Still, the report argued that further investigation is needed of some of the ventures in which Mallightco was involved to determine whether they constituted any wrongdoing.