In a mud-slinging fest in the race for President Barack Obama's old Illinois U.S. Senate seat, U.S. Rep. Mark Kirk, the Republican candidate, has hammered Democratic opponent Alexi Giannoulias for his tenure working as a senior loan officer for his family's Broadway Bank.
In a Kirk campaign TV ad called "Risky," the announcer says, "At his father's bank, Alexi made tens of millions in risky loans to convicted mobsters. Then, the bank collapsed."
We decided to weigh in because this has been the most frequent attack on Giannoulias. And because we like the nicknames.
Let's start with Michael "Jaws" Giorango. He was convicted in 1991 of federal bookmaking charges in Chicago. His business with Broadway Bank began long before Giannoulias joined the bank as vice president and a senior loan officer, a job he held from 2002 to 2006.
But according to a March 2, 2010, story in the Chicago Tribune -- which has done much of the investigative heavy-lifting here -- Giorango and his new partner, Demitri Stavropoulos, came to the bank in mid 2004, and during a 14-month period when Giannoulias was a senior loan officer, secured about $20 million in new loans. As Broadway was financing land deals in Chicago, Florida, California and South Carolina, Stavropoulos in 2005 began a two-year sentence on a felony conviction for running a multi-state bookmaking ring, while Giorango served time for promoting a nationwide prostitution scheme, the Chicago Tribune found.
In July 2009, Broadway Bank filed foreclosure lawsuits seeking to recoup $12.9 million in defaulted loans made to the pair. So there's no question that these were "risky" loans, as the ad put it.
But what was Giannoulias' role in these loans? He was a senior loan officer at the bank at the time, but there's no evidence he approved them.
In an interview with the Chicago Tribune, Giannoulias' older brother, Demetris Giannoulias, the bank's president and CEO, said he established Broadway's relationship with Giorango in the mid 1990s. And Alexi Giannoulias maintains that throughout his association with the bank, the client relationship with Giorango was managed by Alexi’s father and brother.
"In a case like this, where Alexi had no role in managing the client relationship, his responsibilities were more administrative, like getting appraisals ordered and loan documents prepared, coordinating with attorneys, and preparing commitment letters," said Matt McGrath, a spokesman for the Giannoulias campaign.
Initially, Giannoulias downplayed his relationship with Giorango as someone he had met at the bank a few times. But in April, Giannoulias said he traveled to Miami to inspect property the bank had financed for Giorango and met with him there, the Tribune reported.
In addition to Giorango, the other two ne'er-do-wells pictured in the Kirk ad are former state Sen. John D'Arco and Boris Stratievsky.
D'Arco -- convicted of federal corruption charges -- came into play because his name appeared in legal documents in connection with a Giorango company that purchased the Lorraine Hotel in Miami Beach. According to a 2006 story in Crain's Chicago Business, however, Broadway Bank released a statement saying that D’Arco's name does not appear on mortgage papers, "has never been a loan applicant, recipient, co-signer, guarantor or customer" of Broadway, and does not hold an ownership share in the hotel deal.
According to Giannoulias' spokesman McGrath, "the Giorango loans included money that went to the purchase of the Lorraine Hotel in Miami in 2001, a land deal which state Sen. John D'Arco was involved in with Giorango." Giannoulias, however, "joined the bank in 2002 after graduating from law school, so this transaction predated his time there."
Which brings us to reputed Russian mobsters Lev and Boris Stratievsky. According to a March 13, 2010, story in the Chicago Sun-Times, Giannoulias signed off on $20 million in loans to the father and son.
According to McGrath, Giannoulias was not on the loan committee that approved the loans and he did not manage the bank's relationship with them.
More importantly, McGrath correctly noted, Lev and Boris "Half Dollar" Stratievsky had no criminal background at the time of the loans. Boris Stratievsky pleaded guilty in May 2008 to federal money-laundering charges, and Lev has since died. "Even a criminal background check wouldn't have turned anything up," McGrath said. So it would be incorrect to say, as the ad did, that Stratievsky was a "convicted mobster" when Broadway Bank made him a loan.
One last point. The ad says "At his father's bank, Alexi made tens of millions in risky loans to convicted mobsters. Then, the bank collapsed."
The bank did collapse. On April 23, 2010, the Federal Deposit Insurance Corporation (FDIC) announced that Broadway Bank was closed by the Illinois Department of Financial and Professional Regulation, which appointed the FDIC as receiver. According to a press release, "the FDIC and MB Financial Bank, National Association entered into a loss-share transaction on $878.4 million of Broadway Bank's assets." And the FDIC estimated the cost to the Deposit Insurance Fund will be $394.3 million.
The ad, however, suggests that risky loans to mobsters caused the bank collapse, and that's a big stretch. More accurately, the bank invested heavily in construction and development and could not weather the collapse of the real estate market. The losses sustained in loans made to Giorango while Giannoulias was a senior loan officer, while substantial, were a relative drop in the bucket in the overall scheme of the bank's woes.
In summary, D'Arco's involvement involved a loan that predated Giannoulias' time at Broadway Bank. Stratievsky had not been charged with anything when Broadway made loans to him. As for Giorango, his relationship with Broadway Bank began long before Giannoulias came on board.
But as the Chicago Tribune detailed, the bank made Giorango an additional $20 million in new loans while Giannoulias was a senior loan officer. There's no evidence Giannouias approved the loans, but he did some work on them. Still, we think it's awfully misleading to suggest losses on risky loans to convicted felons led to the bank's demise (though they certainly didn't help). In all, we think that all shakes out to a Half True.