San Diego Union Tribune

July 15, 2005

Congressman's career buried by blizzard of questions on actions

By Marcus Stern

Questions about mansions and yachts, campaign donations and defense contracts have derailed the political career of Rep. Randy "Duke" Cunningham.

K.C. ALFRED / Union-Tribune
Rep. Randy "Duke" Cunningham used the proceeds from the sale of his Del Mar-area house to make a large down payment on a $2.55 million mansion in Rancho Santa Fe (above).
As recently as last month he spoke of serving long enough to become chairman of the powerful House Appropriations Committee. But now, an avalanche of questions – emanating from the sale of his Del Mar-area house and his use of a defense contractor's yacht – has shattered that dream in five short weeks.

Inquiries are now under way by the FBI and a federal grand jury in San Diego, as well as the U.S. Attorney's Office in Washington. Criminal investigators with the Defense Department and the Internal Revenue Service also have opened investigations.

The San Diego Republican sold his house in 2003 to Mitchell Wade, founder of MZM, for $1.675 million. Within a month, Wade put the house back on the market for roughly the same price, but it languished there for 261 days before finally selling for $975,000, or $700,000 less than Wade had paid Cunningham.

The large loss on the real estate transaction at a time when the San Diego housing market was sizzling raised questions about whether Wade had paid too much for the house as a way of funneling money to Cunningham.

Cunningham insisted the sale was aboveboard, saying an independent Realtor had set the price for the house and sent Wade a list of comparable home sales to justify that price. But the Realtor, Elizabeth Todd of the Willis Allen Co. in Del Mar, turned out to be a friend and political supporter of Cunningham's.

Also, San Diego real estate professionals questioned Todd's contention that the list of comparable sales justified a $1.675 million price tag. They said the home was worth considerably less.

The sale also turned out to be Todd's first transaction as a Realtor. She also received hefty commissions on Cunningham's purchase of his next home and Wade's later sale of the Del Mar house.

Cunningham acknowledged using poor judgment in selling his house to a man doing business with the government but says he has done nothing improper. The questions that have arisen in recent weeks about his activities will be answered fully and satisfactorily, he said.

Cunningham used the proceeds from the sale of his house to make a large down payment on a $2.55 million mansion in Rancho Santa Fe. The two mortgages he got to help buy the house – one for $500,000 and another for $595,000 – also have come under scrutiny.

Cunningham received the mortgages from a company owned by the nephew and daughter of a Long Island businessman – convicted in a bid-rigging scheme in 2002 – with ties to Cunningham. Thomas Kontogiannis pleaded guilty in connection with a $6.3 million kickback-and-bribery scandal involving the awarding of computer contracts for New York public schools.

Kontogiannis said he explored with Cunningham the possibility of getting a presidential pardon and that Cunningham later sent him the names of lawyers who might help. Kontogiannis abandoned the effort after speaking with the lawyers, he said.

Kontogiannis later paid off the $500,000 note on Cunningham's Rancho Santa Fe house. Coastal Capital, the mortgage company owned by Kontogiannis' relatives, had provided a previous mortgage for Cunningham when he bought a condominium in suburban Washington. Cunningham subsequently sold the condo and paid off the note.

Kontogiannis also bought the 65-foot flat-bottom riverboat, named the Kelly C, that Cunningham had been living aboard in Washington, both men said. Cunningham had bought the boat in 1997 from then-Rep. Sonny Callahan, R-Ala., for $200,000 and sold it to Kontogiannis five years later for $600,000. However, no change of ownership was ever filed with the Coast Guard, and Cunningham was preparing to buy back the vessel for an undisclosed price as recently as late May, Kontogiannis said.

Kontogiannis said he paid off the $500,000 second mortgage on Cunningham's home using money he said he owed for the Kelly C. Cunningham has since said he has nothing to do with the boat.

Meanwhile, Wade bought a 42-foot yacht and placed it in the slip at the Capital Yacht Club where the Kelly C had been docked. Wade renamed the yacht the Duke-Stir, a play on Cunningham's nickname, and made it available to the congressman to live aboard. Stories have surfaced of parties and fundraisers on the boat.

Cunningham initially had said his friendship with Wade was no different from his friendships with chief executives of other companies, such as Qualcomm and Titan. However, he has acknowledged that while he and Wade first got to know each other in connection with Wade's business as a defense contractor, they soon became close friends.

Cunningham sits on the Defense appropriations subcommittee and the Permanent Select Committee on Intelligence. Around the time that he sold his house to Wade, MZM's defense and intelligence contracts with the government began to surge.

The company received its first contracts in 2002. In 2003, it received $41 million. A year later, it was awarded $68 million.

Additional contracts this year brought the total to $163 million before the Defense Department last month halted new contracts to MZM under an umbrella contract known as a blanket-purchase agreement. It cited questions about whether the umbrella contract MZM received in 2002 had been properly awarded.

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