“TIMEO DANAOS, ET DONA FERENTES”

4/3/10

Yesterday’s (i.e., Good Friday’s, 4/1/10’s) Chicago Tribune ran a brilliant front page article reporting that Broadway Bank, the Giannoulias family’s bank, lent $20mmm to Michael Giorango and Demitri Stavropoulos, or to companies and trusts affiliated with them, while current Illinois Treasurer and Senate candidate Alexi Giannoulias was a senior loan officer at the bank and after both Giorango and Stavropoulos had been convicted of felonies involving gambling and, in the case of Mr. Giorango, pimping, for lack of a better term. This is, in some ways, a variation on an old story (See my 2/27, 3/1, and 3/ 4 posts.), as the Giannoulias campaign asserts before blabbering on about how young Alexi will personally lead us to the promised land of peace and prosperity if only we entrust him with yet another high public office. However, there is something that leaped out at me while I read the story.

It seems that in 2004, Broadway Bank, under the wise tutelage of young Alexi, lent Messrs. Giorango and Stavropoulos $680,000 in order to complete the purchase, for $850,000, of what the Tribune described as a “nondescript West Side commercial building” at 1201 S. Western Avenue. To say that I know the neighborhood around Roosevelt and Western well would be giving myself too much credit, but I do have a reasonable degree of familiarity with the neighborhood, and $850,000 seems like a LOT of money for virtually any commercial building in the neighborhood, let alone a “nondescript” (which, judging from the pictures in the paper of the building, seems to be a generous description) property. Eventually, Messrs. Giorango and Stavropoulos stopped making payments on the loans secured by the property. Broadway foreclosed on the property in 2009.

Depending on who the seller of the 1201 property was, or proves to be, this transaction looks like yet another application of a by now time honored Mob deal: A group of associates buys a building, usually a dilapidated or near dilapidated building, for a song. Then it sells the building to another (or the same, using another legal entity) group of associates at a grossly inflated price, all or almost all of which is borrowed from a financial institution, the officers of which may or may not be in on the scheme. Then the “buyers” default on the mortgage, leaving the bank (or, in some cases, the federal government through the FHA or some other alphabet soup agency) holding a virtually worthless piece of property and the “sellers” with a pile of cash.

From 2004 to 2007, Messrs. Giorango and Stavropoulos actually used the building, running a firm called 1201 South Western LLC that specialized in making “hard” loans, a business very much akin to loan sharking, or payday lending, out of that building. (It is highly likely, by the way, that funds borrowed from Broadway were re-lent as part of 1201 S. Western operations.) One could thus argue that, since the property was actually used for awhile before the underlying loan on the property went into default, as opposed to the building’s being bought and then quickly abandoned, 1201 S. Western was not a classic case of the aforementioned mortgage fraud. But it’s not unheard of to have such a property used for a period of time after being “purchased;” doing so could serve to obscure the trail of the transaction.

One could also argue that, if indeed the 1201 transaction, and who knows how many other transactions involving Giorango and Stavropoulos, was a case of mortgage fraud, then Broadway was the victim of Messrs. Giorango and Stavropoulos and possibly, though probably not, non-family accomplices in the bank. Clearly, this was not a case of the Giannoulias family effectively defrauding itself, so there is something to the “Broadway (and, by extension, Giannoulias family) as victim” argument. But this would lead to questions regarding not young Alexi’s ethics but, rather, his competence. Under his tutelage, the bank was defrauded, if, again, this case is what it looks like. This would be yet another instance that flies in the face of the “genius banker with the skill to lead us through the fiscal swamp” image that young Alexi and his handlers would have us believe.

As I’ve said before, young Alexi Giannoulias could turn out to be the gift that keeps on giving, both to the political junkies among us and to the Republican Party.