Cunningham grand jury focuses on yacht club

By Onell R. Soto
UNION-TRIBUNE STAFF WRITER
July 20, 2005





A federal grand jury in San Diego heard testimony yesterday from two officers and a worker from the yacht club in Washington, D.C., where Rep. Randy "Duke" Cunningham lived on a defense contractor's boat for more than a year until moving out under a cloud of suspicion.
The Capital Yacht Club, a few blocks from Capitol Hill, is also where Cunningham lived aboard his own boat before selling it for a $400,000 profit to a Long Island developer whose family financed a couple of his real estate transactions.

The developer said he sought Cunningham's advice on seeking a presidential pardon for his conviction in a kickback scheme, which he later decided not to pursue.

A federal task force that includes agents from the U.S. Attorney's Offices in San Diego and Washington, D.C., the FBI, the Internal Revenue Service and the Department of Defense is investigating the congressman's dealings, authorities said.

The investigation was launched after articles inThe San Diego Union-Tribune raised questions about Cunningham's sale of his Del Mar-area home to the defense contractor, who later sold it for a loss.

The prosecutors handling the case here for the U.S. Attorney's Office wouldn't comment about the investigation and the witnesses wouldn't discuss their testimony.

"I have to decline to comment," said Robert McKeon, who serves as commodore, the club's top officer.

"No comment, sir," said Dockmaster Kelvin Lee.

Rear Commodore Scott Schramm, who sold the yacht to Wade, testified for about two hours and quickly walked away with an IRS agent by his side before a reporter could approach.

A fourth witness wouldn't identify himself, saying he doesn't "talk out of school."

The grand jury's investigation began after stories were published about Cunningham selling his house in November 2003 for $1.68 million to Mitchell Wade, a defense contractor, who less than a year later sold it for a $700,000 loss.

Cunningham used the proceeds to buy a $2.55 million home in Rancho Santa Fe.

Wade's company has been awarded $163 million in federal contracts since 2002.

Cunningham, a member of the subcommittee that funds the Pentagon, said he considers Wade a friend and advocated for his business the same way he has backed other defense contractors.

None of the witnesses who testified yesterday had lawyers with them. Witnesses can't testify with a lawyer by their side, but can consult with them outside the jury room.

Witnesses who can't afford representation also may get government-paid lawyers if prosecutors tell them they are targets of a criminal investigation.

There are 23 members on a federal grand jury and 12 must vote in favor of indictment before criminal charges can be brought. Grand juries also may conclude there isn't enough evidence of a crime and reject such charges.

Cunningham, a Vietnam veteran and former fighter pilot first elected to Congress in 1990, has said his real estate dealings with Wade showed "poor judgment" but has denied wrongdoing.

The Republican announced Thursday that he will not seek re-election in his North County district next year.

He said he couldn't do his job, defend himself from allegations of impropriety and run for office at the same time.

He sits on a subcommittee that oversees Pentagon spending and another committee overseeing intelligence agencies.

Cunningham said he'll sell his Rancho Santa Fe house and give a portion to charity.

Wade, who stepped down as head of his firm, MZM Inc., after the stories ran, had bought a 42-foot yacht and renamed it the Duke-Stir before Cunningham moved in part time. Cunningham said he paid $13,000 in docking fees and maintenance since moving aboard in April 2004.

That yacht was docked in the same spot as the Kelly C, a flat-bottom, 65-foot riverboat Cunningham bought in 1997 for $200,000 from another congressman and sold five years later for $600,000 to Thomas Kontogiannis.

Kontogiannis pleaded guilty in an unrelated kickback scheme involving a $6.3 million computer deal with New York public schools.

A company owned by his daughter and nephew provided $1.1 million in mortgages Cunningham used to buy his Rancho Santa Fe house last year. Kontogiannis said he later paid about half the debt on the house on Cunningham's behalf as part of the purchase of the Kelly C.

In 2002, his family's company also provided $150,000 in financing Cunningham used to buy a $350,000 condominium in Arlington, Va., according to property records.

Grand jury questions three on Cunningham

By: WILLIAM FINN BENNETT - Staff Writer / NC TIMES

SAN DIEGO ---- A federal grand jury investigating U.S. Rep. Randy "Duke" Cunningham's financial ties to a defense contractor met behind closed doors Tuesday, taking testimony from three people associated with a Washington marina where the congressman lived on the defense contractor's 42-foot yacht, called the "Duke-Stir."

Appearing before the grand jury at the downtown federal building were Capital Yacht Club dock master Kelvin Lee; the club's commodore, Robert McKeon; and Scott Schramm, the man who owned the boat before Washington defense contractor Mitchell Wade, who along with Cunningham is at the center of the investigation.

Coast Guard records show that Schramm owned the boat, then called "Buoy Toy," before Wade. After Wade bought the boat, its name was changed to Duke-Stir. In a recent written statement, the 63-year-old Cunningham said he moved onto the boat in April 2004. Wade registered the boat as the Duke-Stir in his name in December 2004, Coast Guard records show.


In written statements, the eight-term congressman who represents the 50th District has said that his living arrangements on the boat were strictly aboveboard because he paid Wade $13,000 for maintenance and docking fees in lieu of rent. However, a San Diego yacht expert said recently that in his opinion, based on the estimated resale value of a boat of that type, Cunningham should have paid significantly more in rent during the approximately 14 months he lived aboard the 42-foot yacht.

Federal law prohibits members of Congress from accepting gifts of more than $100 a year from a single source.

The question of whether the living arrangements were ethical or legal is just one piece in an ongoing federal investigation into Cunningham's dealings with the contractor, who also bought Cunningham's Del Mar Heights home in late 2003 for what appeared to be hundreds of thousands of dollars more than the going rate for similar homes in the neighborhood. Federal investigators are scrutinizing the business arrangements and whether the congressman used his position on a powerful House subcommittee to steer contracts toward Wade's company, MZM Inc., which saw a huge leap in revenue in the last few years.

Cunningham has proclaimed he's innocent of any wrongdoing, although he has acknowledged that he used bad judgment in doing business with a friend who receives defense contracts from the government. On Thursday, the former Top Gun pilot and decorated Vietnam war veteran announced that he would not seek re-election to his congressional seat in 2006, citing the mounting pressure and stress on him and his family.

Before Tuesday's hearing, the North County Times spoke briefly with Schramm. Asked whether he still owned the boat at the time Cunningham began living onboard, Schramm said he did not.

He added that he couldn't remember any details about the sale of the boat.

"I sold the boat and that was the last time I saw it," he said.

First Schramm, then Lee and later McKeon finished their testimony.

Then, one at time, they were whisked into an elevator by a man who identified himself as a special agent for the Internal Revenue Service.

The North County Times attempted to interview both Lee and McKeon as they entered the elevator. Both said: "No comment."

Federal grand jury rules prohibit jurors or members of the court from talking about anything related to their duties on the jury. However, witnesses are not prohibited from talking about their testimony, grand jury officials said this week.

Seen leaving the grand jury room were Assistant U.S. Attorneys Phillip Halpern and Sanjay Bhandari. Asked if he or Bhandari were the prosecutors working on the grand jury investigation of Cunningham and MZM, Halpern said he could not comment on any aspect of grand jury proceedings.

Grand juries are composed of 23 members and meet in secret, interviewing witnesses such as the three who left the grand jury room Tuesday morning. The jury now looking into the Cunningham case will have no role in determining the guilt or innocence of any charge. Rather, they will simply listen to the evidence brought before them and decide whether someone should be charged with a crime.

Former federal prosecutors have said they expect that it will be several months before the grand jury reaches a conclusion on whether to issue criminal indictments or drop the case.

On July 1, dozens of federal agents from the U.S. attorney's office, FBI, the IRS and Pentagon's Defense Criminal Investigative Service conducted simultaneous raids of Cunningham's Rancho Santa Fe home, as well as the Duke-Stir and MZM's Washington offices. The federal agents took away boxes of materials from each site.

A man who has a boat docked at the Capital Yacht Club said last week that following the raids, other federal agents made repeated visits to the yacht club and questioned people there.

Funds could be used to cover any legal fees

By Dani Dodge
UNION-TRIBUNE STAFF WRITER

8:02 p.m. July 19, 2005

People donated more than $40,000 to Rep. Randy "Duke" Cunningham's political action committee last month, according to documents filed Tuesday with the Federal Election Commission.
Cunningham collected much of the money from participants in a Torrey Pines Golf Course fundraiser June 1, according to information received through a public records request.

Federal election documents also show that defense contractor MZM Inc. gave Cunningham's fund, American Prosperity PAC, $5,000 in late May.

Cunningham, who faces several federal investigations into his relationship with the founder of MZM Inc., may be able to use the money for legal fees.

On June 12, The San Diego Union-Tribune revealed that Cunningham, a Republican from Rancho Santa Fe, sold his Del Mar-area home to Mitchell Wade, the founder of MZM, for what appeared to be an inflated price while at the same time recommending MZM for defense contracts. Last week, Cunningham announced he would not seek re-election.

Cunningham's troubles did not slow contributions into either his campaign coffers or his PAC. In the last three months, his campaign fund grew $133,000 to $672,000, according to campaign documents. The golf tournament and other fundraising expenses cost his PAC fund $22,000, but Cunningham still had about $56,000 cash on hand at the end of June, according to his PAC documents he files monthly.

Politicians typically use their PAC funds, often called leadership PACs, to contribute to other candidates and their party. PACs can also be used to pay a politician's attorney fees as long as the legal troubles are related to their political position, said Ian Stirton, a spokesman for the Federal Elections Commission

"If he sets up a separate legal defense account, (the campaign or PAC funds) could contribute unlimited amounts," Stirton said.

Cunningham has not set up a legal fund, but also has not ruled out doing so, said Harmony Allen, his chief of staff.

Elizabeth Todd, the real estate agent who set the controversial price for Cunningham's Del Mar-area home, also arranged the golf fundraiser. About 40 business people attended, some from as far away as Washington and Kentucky. Like most of the golfers, Bumble Bee President and CEO Christopher D. Lischewski represented a PAC, in this case his Encinitas-based company's PAC.

"I know he's been having problems now, but he's been a staunch supporter of the tuna industry," Lischewski said. "This was an opportunity, without going back to Washington, to make sure the congressman knows what our issues are."

Defense contractor PACs including Employees of Northrop Grumman Corp. PAC and Lockheed Martin Employees' PAC paid $5,000 and $2,500, respectively, to Cunningham's PAC after golfing. Other golfers who contributed to the fund represented Cubic Corporation Employees PAC ($2,000), the National Rifle Association Political Victory Fund ($2,500) and SBC Communications Inc. Federal PAC ($2,500).