MOLLY IVINS: Corruption appears to be chomping away

7/9/2005 1:06:04 AM
Daily Journal

AUSTIN, Texas - The stirring tale of Randy "Duke" Cunningham, congressman and bon vivant, becomes more entertaining by the day, and it is far more instructive than another case of a missing white female.

True, Duke Cunningham is merely an obscure Republican from San Diego (Crow Eaten Here: In a recent column, I said Cunningham was in charge of the House Defense Appropriations Subcommittee, whereas actually he is only a member thereof ... apologies. He is also on the Permanent Select Committee on Intelligence.) On the other hand, the whole tale is so ... so prototypical, so archetypal, so (even though I keep promising not to use the word) paradigmatic.

Cunningham was a decorated pilot in Vietnam who has oft campaigned on the claim that he is the original model for Top Gun. In 2003, he sold his house in Del Mar, a very upscale town north of San Diego. The buyer was Mitchell Wade, a defense contractor, who paid $1.675 million. Wade later resold the house at a $700,000 loss.

Way too much?

Now, either this makes Wade the only person in recent history to lose money on a San Diego real estate deal, or the guy paid way too much for the house.

The deal is now under investigation by a grand jury. Cunningham in turn used the money he made from the Del Mar deal to buy a $2.55 million home in Rancho Santa Fe.

Meanwhile, back in Washington, Cunningham is living, rent-free, aboard a 42-foot yacht named the Duke Stir, which belongs to the said same Mitchell Wade. Since 2002, Wade's company, MZM Inc., has received $163 million in defense contracts.

There the case stood until this week, when we learned from Copley News Service and The Washington Post that the boat-loving Cunningham was living on the Duke Stir only because he had sold his own boat, the Kelly C, a 65-foot flat-bottom riverboat, to Thomas Kontogiannis, a New York real estate developer.

Follow this closely: Kontogiannis buys the boat from Cunningham in the summer of 2002. In 2003, a mortgage company owned by Kontogiannis' nephew and daughter finances $1.1 million of the price of Cunnigham's new home in Rancho Santa Fe. Also, Kontogiannis never gets around to putting the Kelly C in his own name, so the Coast Guard still thinks it's owned by Cunningham. What a misunderstanding.

My favorite quote, so far: Kontogiannis, when asked if he was doing Cunningham a favor by keeping the boat in his name while Kontogiannis paid $100,000 to redecorate it, said: "Why would I do that? I don't need the man." The pragmatic approach.

Kontogiannis does admit that he was looking for a pardon for his unfortunate 2003 conviction on kickback and bribery charges in connection with a bid-rigging scheme for New York City school computers. He said Cunningham steered him to a Washington law firm for this purpose, but it was "too much aggravation."

Cunningham is very big on patriotism and the no-flag-burning amendment. Meantime, MZM is working on classified intelligence projects for the government. The company's literature says it helps the government with "enigmatic problems."

Steamlined congressional pork

For those who prefer to contemplate varieties of political corruption in a more systemic way, the current issue of Harper's magazine has a cover article on "The Great American Pork Barrel: Washington Streamlines the Means of Corruption," by Ken Silverstein, which I highly recommend.

Silverstein details the ballooning of the practice called "earmarks" in the federal budget. As it is true of much of what is wrong with our politics, the practice is not new - pork barrel politics has a venerable history - but it is spiraling out of control. The same thing has happened with gerrymandering, also an ancient practice, and campaign contributions. They've always been part of politics, it's just that now they are so much more so. Indeed, what have been just deplorable flaws in our system are now eating the whole system - the flaws are getting bigger than the functioning, with the result that serving the public interest is rapidly disappearing.

Silverstein reports on earmarks: "In the past two decades, the pastime has become breathtaking in its profligacy. Even as the federal deficit soars to record heights, the sums of money being diverted from the treasury have grown ever larger. Last year, 15,584 separate earmarks worth a combined $32.7 billion were attached to the appropriations bills - more than twice the dollar amount in 2001 ... and more than three times the dollar amount in 1998, when roughly 2,000 earmarks totaled $10.6 billion. The process is so willfully murky that abuse has become not the exception, but the rule.

"Earmarks are added anonymously, frequently during last-minute, closed-door sessions of the appropriations committees. An especially attractive feature for those private interests seeking earmarks is that they are awarded on a noncompetitive basis and recipients need not meet any performance standards."

Folks, we are being eaten alive by corruption.

County assessor's office: Duke's home sale price too high



When Randy "Duke" Cunningham sold his Del Mar Heights home to a defense contractor in late 2003, a subsequent county appraisal of the property to set its assessed value for property tax purposes showed the price was $300,000 higher than the home's market value, an official with the San Diego County assessor's office said Friday.

Cunningham sold the home to Mitchell Wade, the president of Washington defense contractor MZM Inc. in November 2003 for $1.675 million.

Since news of the deal surfaced June 12, questions have been raised over whether that sales price was above market value and whether the price was inflated by Wade as payback to Cunningham for the millions of dollars in defense contracts the company has received.

Cunningham, in his only public statement on the home sale to date, has denied any wrongdoing. His attorney said Friday that market conditions between 2003 and 2004 support the view that the sales price was reasonable.

On Friday, Chief Deputy Assessor David Butler said that an appraisal was conducted by his office on the Del Mar Heights property to determine its value at the time of the sale for tax purposes.

To determine its worth, the appraiser looked at a number of factors, Butler said: comparable location, square footage, quality of the house, amenities and sale prices.

"Obviously our appraiser at the time thought that was just too high a sales price based on the comparables," Butler said.

The appraiser made her evaluation of the house in April 2004, based on real estate values at the time of the sale. Wade put the house back up for sale in January 2004 for $1.68 million, but the house hadn't sold by the time of the appraisal.

"The fact that it hadn't sold (also) indicates the $1.675 million sales price was too high," Butler said.

Initial appraisals are always done after a property is sold, he added. But if the appraiser has any reason to believe that the sales price is out of the ordinary, further research is conducted.

"The first question is, 'Was this an arms-length transaction?' " Butler said.

In the case of the sale to Wade, not only did the initial look at comparable properties indicate that the price was higher than it should have been for setting assessment, the property was not listed and the sale was a private transaction arranged with the help of Elizabeth Allen Todd of The Willis Allen Co.

Todd, described by the congressman as a personal friend, did not return phone calls Friday for comment on this story.

Because the sale was private and because of the initial look at comparable sales, further investigation was done. The final appraisal showed that the true market value of the home was $1.375 million, Butler said.

As a federal grand jury investigates the financial ties between the two men, a former assistant U.S. attorney said this week that he believes the first thing grand jurors will be looking at is Cunningham's sale of his home to Wade.

For the past week or so, Cunningham's office has referred all calls to his attorneys. However, in a June 23 news release, Cunningham wrote that "Mr. Wade and I have been friends for years."

He added that because Todd had provided him with a list of comparable properties that were sold around the same time in his area, "I thought the asking price was fair and reasonable."

However, he acknowledged that conducting a private sale was a mistake.

"I recognized I showed poor judgement in not listing the house publically for sale. I should have given more thought to the perception it might create," Cunningham wrote.

After Wade put the house back on the market for $1.68 million, it sat on the market for 261 days. And by the end of that time, the listing price had come down to $1.3 million. He sold the house last October for $975,000, a $700,000 loss.

Butler said that after that sale, the home was appraised again. Because it had been on the open market for that many months without selling and because it sold for that price, the appraiser valued the home at $975,000. He noted that comparable home sale prices at the time of the second sale also put that sales price within the lower range of acceptable prices.

Cunningham's Washington attorney K. Lee Blalack said Friday that the $975,000 sales price in essence vindicates Cunningham.

"If this assessment is correct, Mr. Wade resold the Del Mar house in October 2004 at $400,000 below the supposed market value of the house in November 2003. The press continues to report that if anything, the value of the house in the hot California real estate market should have increased during that time ---- not decreased. So much for that theory. This assessment simply confirms that the fair market value of that property is a matter of opinion and that it was entirely reasonable for 'Duke' to have asked for the sale price he did."