Friday, April 2, 2010

Broadway Bank gives $20 million in loans to felons, when Alexi Giannoulias was senior loan officer

By David Jackson, John Chase and Ray Gibson,
Tribune Reporters




9:58 p.m. CDT, April 1, 2010


The family bank of Democratic Senate candidate Alexi Giannoulias loaned a pair of Chicago crime figures about $20 million during a 14-month period when Giannoulias was a senior loan officer, according to a Tribune examination that provides new details about the bank's relationship with the convicted felons.


Broadway Bank had already lent millions to Michael Giorango when he and a new business partner, Demitri Stavropoulos, came to the bank in mid-2004. Although both men were preparing to serve federal prison terms, the bank embarked on a series of loans to them.

Alexi Giannoulias took a senior position at the bank at about the same time and used it as a launching pad for his political career. But as he campaigns to step up from state treasurer to the U.S. Senate, he has tried to distance himself from the bank's business with the pair and has been reluctant to detail his role.

Broadway is now suing to recover millions of the pair's delinquent loans as the bank struggles to avoid a federal takeover. While Broadway lawyers now criticize Giorango's business practices, the newspaper's examination of court files, land records and public bank documents raises questions about the bank's decisions to make loans to men with criminal histories.

"Banks are not supposed to be doing business with criminals," said banking consultant and former Texas Banking Commissioner Catherine Ghiglieri. "The onus is on the bank to make sure they know who they are dealing with."

Public records do not show which bank officials negotiated or approved any of the loans. Giannoulias declined to be interviewed by the Tribune or to review public records outlining the bank's loans. In a written statement from his campaign, Giannoulias said he did not play a central role in the loans. "In retrospect, I think the added security of a background check would have been good, and I believe that many more banks — including Broadway — now include such checks as part of the loan-making process," he added.

Stavropoulos in 2005 began a two-year sentence following a felony conviction for running a multistate bookmaking ring, while Giorango would serve six months intermittent confinement on a felony for promoting a nationwide prostitution scheme as Broadway financed their land deals from downtown Chicago to Florida, California and South Carolina.

In the most complete examination yet of Broadway's loans to the pair, the Tribune found more than $27 million worth of mortgages to Giorango and his land trusts and companies since 1999. Stavropoulos took part in many of those deals. Broadway officials have cited privacy laws in declining to document the full extent of their business with the men. The new figures exceed reported totals by about $7 million.

Shortly after Broadway began lending money to a Chicago firm the pair formed, Giorango and Stavropoulos used that company to launch their own lending business and make more than 40 short-term loans to borrowers who might not qualify for traditional bank financing, the Tribune found. Such so-called hard-money loans are typically riskier than long-term mortgages offered by banks.

Broadway officials say they were unaware of the pair's lending operation and believe the bank's loans were used solely to fund real estate purchases. They acknowledged they did not inspect or audit the company's business records, though Broadway's loan provisions allowed the bank to do so.

In a two-hour interview this week with the Tribune, Giannoulias' older brother, Demetris Giannoulias, the bank's president and CEO, said he established Broadway's relationship with Giorango in the mid-1990s. Giorango began investing in Chicago properties after completing two federal prison stints for running bookmaking schemes.

Demetris Giannoulias described Giorango as an account holder who at first used relatively small loans for real estate ventures that proved successful. As those ventures grew more ambitious, Broadway advanced more than $6 million to Giorango or his land trusts and companies between 1999 and mid-2004, land records show.

In part because those loans "performed," Demetris Giannoulias said, the bank felt comfortable launching the spate of new financing beginning in mid-2004. Alexi Giannoulias, who started his professional career at the bank in 2002, said in his statement that he was "one of" the senior loan officers at the bank and was not a member of the loan committee that approved the financing for Giorango.

Alexi Giannoulias' role was limited to "getting the appraisals ordered, getting the loan documents prepared, coordinating with attorneys, getting commitment letters prepared. All that kind of stuff," Demetris Giannoulias said.  Demetris Giannoulias said the bank learned of Giorango's bookmaking and prostitution promotion convictions from a spring 2004 Tribune report detailing those cases.

"But we're a relationship bank," he said. "So somebody comes in and in all his dealings with the bank seem to be on the level, everything makes sense, nothing seems illicit or untoward. Just because somebody gets a bad article written about them there's no reason to say, ‘Hey, listen, I'm going to kick you out the door because you don't win a popularity contest.' We didn't think he was doing anything illegal."

He said he asked Giorango about the convictions and Giorango said, "It's in the past. I don't do that anymore." At least one of the Broadway mortgages signed by Giorango — a September 2005 loan for $3.4 million used to buy a 32-unit Los Angeles apartment complex — specifies that the borrower "has not been convicted of a felony."

Stavropoulos recently worked as the $5,000-a-week consultant to a Bridgeview strip club, according to his testimony in a September 2009 civil court deposition, and operated a real estate firm that listed properties of reputed Chicago Outfit figure Michael Sarno. Stavropoulos and Giorango both declined to comment.

The firm the pair founded that made hard-money loans, 1201 South Western LLC, is embroiled in lawsuits involving delinquent loans. Broadway ultimately foreclosed on mortgage loans it made to the company and took control of its property at 1201 S. Western Ave. on the city's West Side.

Demetris Giannoulias told the Tribune the bank had no reason to believe that Broadway loans to the 1201 business were used for a hard-money operation. "Generally speaking, we did not give any loans to finance lending operations to any clients," Demetris Giannoulias said. But he added that the bank did not inspect or audit the pair's business records.

"There's no reason to believe there was anything going on but the acquisition of the real estate," he said of the Broadway loans. Broadway violated no laws if it didn't know that Giorango and Stavropoulos were using Broadway funds to lend money, said Robert Serino, a former director of the Comptroller of the Currency's enforcement and compliance division. But Serino added that if the Giannoulias family "put their head in the sand and didn't want to know, they wouldn't necessarily be violating the statute, but they may not be doing their jobs."

The 1201 firm was formed in August 2004 and that month paid $850,000 for a nondescript West Side commercial building. Broadway loaned the 1201 firm $680,000 to complete that sale. That building was then bundled with other properties as collateral to secure millions of dollars in additional Broadway loans to the 1201 firm.It is not possible to determine from public records whether money from Broadway mortgages was poured into the pair's hard-money operation. Take for example what appears to be Broadway's first deal with Giorango and Stavropoulos.

In July 2004, records show, Broadway gave Giorango and Stavropoulos a $1.1 million loan, and they used that money to pay $1.5 million for an office building at 88th Street and Ashland Avenue. But the South Side businessman who owned the property at the time told the Tribune he was not selling the building to Giorango and Stavropoulos but rather was using it as collateral to borrow money from them.

"He (Giorango) loaned me the money, and I paid him off," said Gene Linton, who ran a company called the Economic Development Center that owned the property. Broadway got back its investment when Linton sold the building six months later.
In addition to the 1201 S. Western building foreclosure, Broadway lawyers since last year have filed six separate foreclosure lawsuits as well as bankruptcy court pleadings to recover roughly $15 million from delinquent mortgages to Giorango and Stavropoulos ventures. Five of those cases were resolved when the bank took or sold properties, but two cases over loans totaling $7 million are pending, records and interviews show.

Today Broadway lawyers harshly criticize Giorango's business skills and practices, saying in a recent legal brief that he didn't pay taxes or keep proper business records on a Miami Beach hotel used as collateral for multiple Broadway loans totaling more than $10 million. The bank attorneys alleged in court papers that Giorango "severely mismanaged" that hotel and failed to make repairs or address code violations.

The bank's ongoing problems have become a major campaign issue for Alexi Giannoulias as he runs against Republican opponent U.S. Rep. Mark Kirk. Giannoulias last month said he fears Broadway, which is struggling to raise more than $85 million to prevent a federal takeover, will fail.



dyjackson@tribune.com

jchase@tribune.com
rgibson@tribune.com


http://www.chicagotribune.com/news/elections/ct-met-giannoulias-bank-loans-20100401,0,1521213,full.story

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