A new headache for Giannoulias? Another Rezko loan

His family bank lent $22.75 million, in newly uncovered deal

August 2, 2010

BY ABDON M. PALLASCH, CHRIS FUSCO AND TIM NOVAK Staff Reporters

By February 2006, businessman and political fixer Tony Rezko was already politically radioactive, caught up in a federal investigation that would see him criminally charged by the end of that year.

News reports had linked Rezko, a key adviser and campaign fund-raiser for then-Gov. Rod Blagojevich, to shady deals involving state pension funds -- among the crimes that ultimately would send him to prison.

This was the Tony Rezko who, looking for millions of dollars for a massive South Loop development, turned to Broadway Bank, owned by the family of Alexi Giannoulias. Giannoulias, the Democrat now running for U.S. Senate, had left his post as a senior loan officer at the Chicago bank in late 2005 to mount a successful campaign for Illinois state treasurer, though he still held an ownership stake in the bank.

Rezko's company asked. And Broadway Bank came through.

On Feb. 14, 2006, newly obtained records show, the bank made a $22.75 million loan to a company called Riverside District Development LLC, whose owners, it turns out, included Rezko.

You won't find Rezko's name on any documents filed in the public record in connection with the loan.

But Rezko acknowledged his ownership stake in Riverside District Development to a federal judge about a year after the loan was made, according to a transcript of the court hearing.

The loan could prove to be a political liability for Giannoulias as he campaigns against his Republican opponent, U.S. Rep. Mark Kirk, for the Senate seat now held by Roland Burris. Not only does its disclosure come during the Senate campaign, but records show the loan was made while Broadway Bank was already having problems with an earlier loan to another Rezko company.

Federal authorities shut down the bank in April.

Giannoulias, who touted his experience at Broadway Bank in his campaign to win election as state treasurer, has said its failure was the result of the national economic slowdown and the pullback in the real estate market, in which it invested heavily.

Through a spokeswoman, Giannoulias says he knew nothing about the $22.75 million loan to Riverside District Development until reporters contacted him.

"Alexi left daily operations of the bank in September of 2005, months before this loan was made," says Kathleen Strand of his campaign staff. "He had no knowledge of it, and his name is not on any documents related to the loan.

"This guilt-by-association story is an unfortunate and failed attempt to link Alexi to Mr. Rezko.''

Rezko's relationship with the bank developed through his friendship with the bank's founder, family patriarch Alexis Giannoulias, Alexi Giannoulias' father, who died in June 2006.

Giannoulias' brother Demetris Giannoulias is the only Broadway Bank official named in public records regarding the loan, which involved a large, vacant piece of property in the South Loop -- 62 acres at Roosevelt Road and Clark Street -- that Rezko had been trying to develop. He hoped to build more than 4,000 homes along the Chicago River there, but he couldn't get City Hall to agree to provide $140 million in tax money to help pay to build roads and put in sewers to make the project work.

Broadway Bank made the loan even though another Rezko company, Chicago Hudson LLC, had fallen behind on a $10.9 million loan it got from the bank four years earlier. That loan -- for a proposed high-rise condo building at 750 N. Hudson on the Near North Side that never got built -- ended up in Bankruptcy Court. The property ended up being sold to another developer. Broadway Bank received $11.5 million from the sale, which took place July 31, 2006.

Following Rezko's indictment in October 2006, he and his lawyers met in January 2007 with U.S. District Judge Amy St. Eve to discuss his assets. During that closed-door hearing, Rezko disclosed his ownership stake in Riverside District Development, the company that got the $22.75 million loan from Broadway Bank. Rezko's lawyers said his main partner in Riverside was General Mediterranean Holding, a Luxembourg company controlled by Iraq-born billionaire Nadhmi Auchi.

In a January 2008 court filing in Rezko's case, federal prosecutors in Chicago wrote that Auchi was "convicted several years ago in France on fraud charges" and sentenced to 15 months in prison, "but the sentence was suspended as long as Auchi committed no new crimes."

Auchi has said he has done nothing wrong and has sought to distance himself from Rezko. Auchi's lawyer, Alasdair Pepper, says Rezko no longer has a stake in the 62-acre site, which remains vacant.

Financial institutions typically file a document called a "release of lien'' when a loan is repaid. There's nothing on file with Cook County Recorder of Deeds Eugene Moore's office to show that Riverside District Development repaid the six-month loan from Broadway Bank, which was due Aug. 14, 2006.

But Giannoulias' campaign office says the loan was paid off early. Auchi's lawyer provided documentation to support that, showing the loan was repaid in July 2006.

According to Giannoulias and Auchi, Riverside District Development paid off the Broadway Bank loan with money it obtained from a $27 million loan from another financial institution: Mutual Bank.

Like Broadway Bank, Mutual also ended up getting shut down by federal regulators -- though the loan was paid off, records show. Like Rezko, Mutual's president, Amrish Mahajan, had been a top fund-raiser for Blagojevich.

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