San Diego Union Tribune

July 5, 2005

Boat sale by 'Duke' made him $400,000
Buyer's kin were lenders of Cunningham mortgage

By Jerry Kammer and Marcus Stern

CITY ISLAND, N.Y. – Rep. Randy "Duke" Cunningham made roughly a $400,000 profit by selling the boat he lived aboard in the nation's capital from 1997 to 2002 to a businessman convicted in a bid-rigging scheme. The man said he subsequently got advice from Cunningham about how to pursue a presidential pardon from the Bush administration.

Cunningham not at pancake breakfast
The businessman further acknowledged that a mortgage company owned by his daughter and nephew provided Cunningham with two loans totaling $1.1 million so the congressman could buy his home in Rancho Santa Fe. The businessman said he eventually paid off one of those loans in partial payment for the yacht.

Cunningham bought the 65-foot flat-bottom riverboat Kelly C from then-Rep. Sonny Callahan, R-Ala., for $200,000 in 1997. Five years later, he sold the boat for $600,000 to Thomas Kontogiannis, the Long Island businessman said yesterday.

Kontogiannis defended the $600,000 price tag as "a steal," saying that he had received an appraisal for twice that amount.

The Kontogiannis family is a frequent contributor to Republican causes, including a $300 contribution to Cunningham in July 2002, the year of the sale.

Cunningham's financial dealings in recent weeks have embroiled him in a multitiered federal investigation and cast a shadow over his Washington career.

In a series of interviews with Copley News Service yesterday, Kontogiannis confirmed that he bought Cunningham's boat and that the congressman offered to help him explore the possibility of seeking a pardon from President Bush and the Justice Department. Cunningham then put him in touch with a Washington law firm and recommended "two or three" lawyers to talk to, said the businessman.

"I said I have this problem and I was wondering if I can get a pardon out of it," said the 56-year-old real estate developer, who has more than a dozen companies. "He (Cunningham) said to me, 'I know nothing about these things, but I'll find the proper law firm and I'll let you know if they can help you.' "

Kontogiannis was among four people and five corporations pleading guilty in October 2002 to kickback and bribery charges in connection with a$6.3 million bid-rigging scheme involving contracts to provide computer services to New York public schools. Kontogiannis owned three of the companies. The defendants were ordered to repay the school board $4.8 million.

Kontogiannis said he went to Washington and talked to the law firm recommended by the congressman. But he said he then dropped the idea. "It's not worth the aggravation," he said, describing the process as too complicated.

U.S. Coast Guard records do not reflect the sale of the Kelly C from Cunningham to Kontogiannis, showing Cunningham as the boat's owner since 1997.

Kontogiannis said he never registered the yacht in his name because it is not seaworthy and he knew he would not be able to take it out on the ocean in its current condition.

He confirmed that he and Cunningham had talked about the congressman buying it back from him, at a price he did not disclose. But Kontogiannis said he dropped that idea when he saw how expensive it would be to acquire an ocean-worthy yacht.

That change of mind came after Cunningham visited the shipyard here with a long list of repairs to be made, but just before Cunningham became engulfed in controversies over his sale of his Del Mar-area house to Mitchell Wade, a defense contractor, who later resold the house at a $700,000 loss.

Cunningham's dealings with Wade are the subject of FBI and federal grand jury investigations.

Wade is the founder of MZM Inc., a Washington, D.C.-based company which has received $163 million in defense contracts since 2002. Cunningham, a member of the influential House defense appropriations subcommittee and Permanent Select Committee on Intelligence, has said that he supported funding requests benefiting MZM. Cunningham also has lived aboard Wade's 42-foot yacht, the Duke-Stir, since April 2004 in the same slip once occupied by the Kelly C.

Federal agents executed search warrants Friday at Cunningham's Rancho Santa Fe home, MZM's headquarters and Wade's yacht.

The boat at the center of this latest storm to rock Cunningham today sits forlornly on blocks in the shipyard of Consolidated Yachts at the end of Pilot Street not far from the Neptune Inn and Sammy's Fish Box restaurant.

Though gussied up recently with fresh coats of white paint and what Kontogiannis said was a $100,000 refurbishing overseen by his wife, the boat is far from ready for much ocean travel, according to workers at the shipyard.

Its last sea voyage came with Cunningham at the helm. That was late in 2002 when Cunningham delivered it to the Glen Cove Marina near here, according to Joe Weiser, Glen Cove's owner.

"He brought it here himself," Weiser said of Cunningham. "He gave me a picture of himself in his flight outfit."

Cunningham was a decorated pilot in Vietnam.

Attempts to reach Cunningham attorneys K. Lee Blalack and Mark Holscher for comment last night were unsuccessful. Nor did Cunningham spokesman Mark Olson respond to calls to his cell phone.

Kontogiannis said there is no comparison between the sale of Cunningham's Del Mar-area house to Wade and the sale of the Kelly C.

"There is no reason for me to avoid something. Everything is plain and simple for me," he said, adding about Cunningham's problems with MZM, "I don't know what the problem is that they have out there, but that is their problem."

The developer confirmed that a mortgage company owned by his daughter and nephew, Coastal Capital, provided the mortgage loans to the congressman when he bought his $2.55 million home in Rancho Santa Fe.

He insisted the loans were at "normal rates." Kontogiannis said he earlier this year paid off a $500,000 second mortgage on that home, primarily using money he said he owed Cunningham for the yacht.

"We accumulated all the money and paid the second mortgage off . . . on the fifteenth of March," he said.

Cunningham never listed the mortgage debt on his congressional financial disclosure forms, though he was not required to do so. (Members of Congress are are not required to list or provide details on their personal residences or personal property.)

Kontogiannis said the rate on the $500,000 loan was about 10 percent and the rate on a $595,000 loan was "maybe around 6 or 6¼."

Weiser said the Kelly C, whose twin engines are considered too small for a 65-foot yacht, never left its slip. Kontogiannis agreed that the flat-bottomed boat could not handle the ocean, and said he used it primarily for dockside parties.

"It's basically a party barge," said marina mechanic Wes Iencierz. "It's something you'd take out into a river, drop an anchor and have a party."

Iencierz confirmed yesterday that six weeks ago Cunningham showed up at the marina with his own mechanic in tow, clearly indicating that he intended to buy it back. Cunningham's mechanic handed him a long list of needed repairs.

Shipyard employees had derided the Kelly C when it arrived at the Glen Cove Marina around August 2002 because of its poor mechanical condition. The boat was rarely used while berthed at Glen Cove, according to marina employees.

Aboard the yacht yesterday, the repair list – or a similar list – could still be seen on the boat, which rests on wood blocks stacked three-high and is held aloft by adjustable metal braces.

The door to the interior has a stylized "C" etched in the glass and the signs of the $100,000 refurbishing could be seen in the blue carpeting, leather coach and well-crafted wood bar.

The list of repairs included work on engine impellers, running lights, the anchor light and the filters.

The co-owner of Consolidated Yachts clearly was uncertain about the future of the boat now that Cunningham has removed himself from the picture. "I could get stuck with the damn thing," said Wesly L. Rodstrom Jr. He said he called Cunningham called only a few days ago – either Thursday or Friday – to find out what was going on. "He said, 'Oh, I've got nothing to do with the boat.' "

Contributing to this story was Copley News Service correspondent George E. Condon Jr. in Washington.

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