A Federal Case?
Will the feds investigate Deedee for potential fraud in Giftgate?
By Lynn Packer
OCTOBER 20, 1997: Last month, as Arizona Governor Fife Symington was being convicted of bank fraud, Salt Lake City Mayor Deedee Corradini remained untouched by attempts to prosecute her for her roles in the Bonneville Pacific fraud and in the so-called Giftgate or Deedeegate scandal. Is she Teflon woman; no case thrown at her sticks? Even District Attorney Neal Gunnarason, who declined to prosecute the mayor for soliciting more than $231,000 in cash and loans, facetiously refers to the scandal as Houdinigate.
Gunnarson's four-man review panel voted unanimously against charging Corradini. One panel member, Deputy Davis County Attorney Bill McGuire, believed there was at least enough "probable cause" evidence to have arrested the mayor but insufficient "evidence beyond a reasonable doubt" to have prevailed in court. (See Sidebar: Will a Grand Jury Be Impaneled?)
Critics argue that Gunnarson and his panel wimped out, interpreting Utah law too strictly, like saying someone has to commit murder in order to violate a simple assault statute. "I think this should have been presented to a jury," says a former prosecutor. "Let them decide the facts: Did she use her office as mayor to get those gifts to cover her ass in the bankruptcy court."
Unlike Utah, Arizona is tough on political corruption. Symington was indicted for criminal conduct that occurred even before he took office. Before him, Evan Meacham was impeached and removed for misusing state money while governor.
"There is not a real strong tradition of prosecuting public corruption out there," says one out-of-stater familiar with Utah's Giftgate. Indeed, Utah was not swept up in a national trend to fight public corruption. Gunnarson says the absence of any successful prosecutions under Utah's anti-corruption statutes hampered his review of the Corradini case.
Local prosecutors are often loath to prosecute fellow, local officials. It's one reason Congress has enacted laws enabling federal prosecutors to combat state and local political corruption. Symington was prosecuted by the federal government the U.S. Attorneys office in Phoenix not by county nor state attorneys.
The U.S. Attorney's offices in some states, Massachusetts for example, even have special units to fight federal, state and municipal malfeasance. "The notion that a public official in Massachusetts would receive any kind of gift from somebody, never mind a series of gifts totaling $250,000, and the U.S. Attorney would not completely undress that politician in terms of her life for the last five or 10 years is inconceivable," the out-of-state source said.
The heart of the federal case against Symington was his lying on loan applications in connection with his crumbling real estate empire. That same kind of bank fraud is one of a list of suspected criminal missteps on Corradini's part. The mayor appears to have lied on a Zions Bank loan application in 1992, a loan she needed to help extricate herself from the swirling Bonneville Pacific controversy.
Her suspected false application came to light during the time the U.S. Attorney was investigating her role in Bonneville. The focus of that federal case, though, was tax evasion and money laundering, not bank fraud. A federal grand jury was disbanded without voting on whether to indict the mayor.
The Giftgate scandal erupted after the U.S. Attorney had dropped Corradini as a suspect. Her solicitations could, though, re-expose her to federal scrutiny. Gift-gate potentially involves federal misconduct including mail fraud, wire fraud, extortion and bank fraud. Amazingly, the way she handled the donations on her tax returns could reopen the seemingly dead federal tax case.
The Federal Case and Bank FraudIn 1992, shortly after Corradini was elected, the mayor filed loan documents with Zions First National Bank. She pumped up the assets on her loan application by listing the Rossadini Corporation as valued at $350,000. Corradini and her husband had formed Rossadini to receive "assets" they were removing from the infamous, off-shore Sallah Corporation. Sallah had been used by Bonneville insiders to loot money from investors and to stash the cash in their numbered sub-accounts in a Swiss Bank. Corradini had used Sallah money to buy a home, a condo and to pay for lavish Italian vacations.
The Rossadini "asset" listed on the Zions loan application actually represented debt. That portrayal of a debt as an asset potentially distorted her net worth by a $700,000 swing. Making false statements on a loan application could violate federal law.
When Bonneville Pacific took out bankruptcy, the court-appointed trustee hit up Corradini and her colleagues for millions of dollars in restitution. Corradini was the first of the partners to settle out-of-court, for less than half of the $1.7 million the trustee believed she had wrongfully taken. But she portrayed herself as a victim of Bonneville's collapse. In tears, she told City Weekly, "We will be forced to sell our home to help meet these obligations." She said repaying the trustee "will be devastating for us financially." The stage had been set for the transition between the Bonneville and Giftgate scandals.
Late in 1993, after cutting the deal with the trustee, the mayor began secretly soliciting large cash gifts from prominent Utahns to help make $50,000, bi-annual time payments. She later told the Deseret News that her husband's law practice was "down to nothing" and "there's only so much you can borrow."
By November 1993, the first of the loans and gifts that ultimately would exceed $231,000, began coming in. Her pitch to the donors was the same as her spin to the media: Her financial situation was "serious." She told contributor I. J. Wagner she was on the verge of bankruptcy. She reportedly wept two days before Christmas in 1993 as she told Franklin Quest co-founder Hyrum Smith she was on the verge of losing her home.
Flash forward another three years to June 1996. Corradini and her husband, Yan Ross, make the last payment to the Bonneville trustee, discharging their $805,000 debt. They are still in the same home they had been on the verge of losing for years.
In a press release, the mayor says she borrowed $50,000 from First Security Bank in June of '96 to make that final payment. It said the First Security Bank loan was "paid off with proceeds of the sale of her home," which finally occurred about a month after she paid off her trustee debt.
Salt Lake City Council special counsel Martin Healey tried to investigate the First Security loan. His interest had to do with gift-giving, not criminal wrongdoing. "It was not my mandate to find bank fraud," he said. He wanted to see whether or not it was an arms-length transaction, whether the loan was "treated differently than any other loan would have been treated in terms of rate, or in terms of security that had to be pledged."
But the mayor would not respond to Healey's request for information, perhaps for good reason. That First Security loan could, more than any other single event, reawaken the interest of federal prosecutors. How could the mayor, who had been pleading poverty to the media and to potential donors, qualify for a $50,000 loan? Her house, which was still on the market, did not secure the loan, according to county records.
Had Corradini misstated her assets on the First Security loan application as she had on the Zion's application four years earlier? Did she reveal all her debt, such as the $80,000 in legal fees? If she were deceptive, it's another potential bank fraud charge that federal authorities could bring against her.
Corradini may have been painting a picture of poverty when fundraising, and a picture of wealth when trying to borrow from a bank. That's what Fife Symington did: Time magazine reports that the Assistant U.S. Attorney in Phoenix "called the former governor a classic con man, who falsely inflated his net worth when he wanted to borrow and pleaded poverty when he wanted to refinance a loan on more favorable terms."
What if, though, Corradini had qualified for the loan, that is; what if her loan application was truthful, accurate and justified the lending of $50,000? That could mean she was far from the penniless pauper she portrayed herself to the media and to donors. A truthful application that shows abundant collateral would ward off bank fraud suspicions, but could also be proof the mayor lied to her donors, thereby raising theft by deception suspicions.
A third scenario has Corradini telling the truth to both the bank and to donors. Instead, she uses a co-signer to qualify for the $50,000 she got from First Security. That's what Healey wanted to know. If she used a co-signer, was that use of collateral enhancement itself a "loan" for the mayor?
Federal Mail FraudThe federal mail and wire-fraud statutes, similar to Utah's theft by deception law, prohibit using the mails and interstate wires and telephones in connection with any scheme to obtain money by means of false or fraudulent pretenses.
Under the federal law, not only can a suspect defraud an individual of something tangible, like money, the suspect can also be prosecuted for defrauding citizens, of a city for example, of their right to honest and faithful service of public officials. Congress added that provision to beef up the use of mail fraud in combating political corruption.
The federal statute is more difficult to prove than the Utah statute in that prosecutors must prove that either the mail was used in furtherance of the crime, or interstate telephone or wires were used to make pitches or transfer money.
The City Council's special counsel was not looking for mail or wire fraud and so did not ask how transfers were made. But Healey was under the impression most checks were picked up in person in connection with face-to-face meetings.
Federal Tax FraudIt's unthinkable that Mayor Corradini would commit tax fraud at the very time a grand jury was investigating her suspected tax evasion associated with Bonneville Pacific. On the surface, the so-called gifts she solicited appear proper in terms of their tax consequences. Legitimate gifts, up to $10,000 annually, per donor, are exempt from income tax.
"Mayor Deedee Corradini announced today she has contacted everyone who gave her gifts É" read her first press release about the scandal. By picking up and using the mayor's term, "gift," to describe the solicitations, the news media helped put a dignified spin on the solicitations. Even the term "Giftgate" assumes the payments were gifts, as opposed to gratuities, bribes or extortion payments.
Corradini crafted her requests to avoid taxes and IRS scrutiny. She often requested "gifts" in $10,000 chunks, the maximum a person can receive annually from an individual donor without tax liability for either the giver or receiver. "She was requesting that amount because of potential tax implications," special counsel Healey wrote of one $10,000 gift. If the donated cash and loans are not viewed as gifts in the eyes of the IRS, then Corradini would have had to report much of the $231,000-plus as taxable income on her 1993-1996 returns.
The IRS has its own definition of the word "gift," which is sufficiently narrow to keep tax cheaters from declaring anything a gift in order to take advantage of the largesse of the tax code. A parent, for example, cannot employ a child in the family business, and call his salary a gift in order to help the child avoid paying income tax.
"A gift for income tax purposes is a transfer without adequate consideration which is made out of the donor's 'detached and disinterested generosity,'" according to a tax handbook. "But if the donor makes the transfer as a consequence of 'the constraining force of any moral or legal duty' or from 'the incentive of an anticipated benefit,' the transfer will not qualify as a gift for income tax purposes."
Mayor Corradini started with one foot in the grave in terms of complying with "detached generosity." She solicited most of the payments, the idea originating with her. "Most of the money given to or loaned to the Mayor was in response to direct solicitations from her," said Healey's report to the City Council.
Several experts suggest one characteristic of a true gift is that the donor "feels a generous impulse" toward the donee. Corradini nudged, cajoled, even browbeat, according to Healey's report: "In at least three instances when individuals did not give the Mayor the amount of money she had requested from them, the Mayor made her displeasure known to those individuals."
A Salt Lake City CPA said the more the receiver of a purported gift controls the donation, the less it is a gift. We asked the CPA how many red flags it would take before he would tell a client his feet are in the grave:
Q. What if your client asked to receive a gift rather than wait for the donor to think of it? Is the gift taxable income?
A. It will be a red flag, but it can be overcome.
Q. What if your client solicited the gift and said it must be cash rather than a purchased item, like perfume?
A. It's starting to smell bad at this point. It smells bad but can be overcome.
Q. What if your client asks for cash and specifies an amount?
A. Now you're starting to control one of the elements of giving. When you start exercising control over the size of the gift, now we're going to have a real hard time overcoming that red flag.
Q. What if your client says he was pressed for money and told the donor when he needed the money, suggesting a deadline?
A. Now you're controlling a second element of the gift, timing. The gift is no longer based on the donor's "generous impulse."
Q. What if your client tells you he is also a city councilman and his donor friend is a contractor who is involved in getting building permits and zoning changes?
A. That one reeks. I don't think there is any way to overcome that red flag. You have an influence that you may not have thought you were peddling. But from this point on your decisions are tainted, and may have started when you first thought of asking this friend for money.
Q. What do you call it, then, if it's not a gift: A payment or gratuity?
A. The ugly term is a bribe.
There are even more red flags. The above hypothetical applies to a single donor. What if she made similar requests of two people? Of three? Of more than 10? What if misrepresentations are involved?
The Fed's Main Weapon: The Hobbs ActOne of the most powerful tools federal prosecutors use to pursue corrupt public officials is the so-called Hobbs Act. "The Hobbs Act has become the federal government's chief weapon in fighting corruption in state and local government," says one expert. The act was first passed to combat labor racketeering. Later, its features were used to crack down on public officials who solicited, extorted or took bribes from racketeers, and most recently as "a principal weapon in the government's arsenal against corruption in public affairs."
The law prohibits extortion. Extortion is a crime that dates back centuries: "Extortion is an offense committed by a public official who takes 'by color of his office' money that was not due to him for the performance of his official duties." Some judges have held that the coercive element is provided by the public office itself. Some courts have expanded the definition to require that the public official "induce," that is, ask for the fee. Others require that the official perform a specific act, a quid pro quo, for the fee. Some require both inducement and an act.
Although the Hobbs Act is widely used by federal prosecutors, the elements that must be proven vary from jurisdiction to jurisdiction in the country, depending on rulings by appeals courts. Some circuits require that the public official ask for the bribe to be convicted. Others require some special, official act in exchange for the payment or they will reverse a conviction. The Tenth Circuit, Utah's Circuit, has had so few Hobbs Act cases, there is not much precedent for prosecutors in this area to go by.
In West Virginia, for example, there was a case where the court did not require an official act as an element of the crime. A former commissioner of the state Alcoholic Beverage Control Commission was convicted of receiving substantial amounts of free liquor from various wholesalers. Although prosecutors could not show the commissioner had done anything in exchange for the "gifts" the court determined that "the conclusion is irresistible thatÉthe 'gift' was not a gift, but rather was in return for favors." The jury was allowed to infer there had been an expectation of a so-called quid pro quo, found the benefits were not true gifts, and convicted the commissioner.
PostscriptOne question among many the mayor declines to answer is who told her she could legally solicit the payments? Her ex-husband, Yan Ross, is an attorney who specializes in finance. She had a team of attorneys and a CPA under engagement to help her ward off prosecution for income-tax evasion and money laundering.
Despite the promise she made to be more forthcoming about her financial affairs to the news media just before her re-election, the mayor is not talking.
News & Opinion: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
© 1995-99 DesertNet, LLC . Salt Lake City Weekly . Info Booth . Powered by Dispatch