WASHINGTON – A defense contractor with ties to Rep. Randy "Duke" Cunningham took a $700,000 loss on the purchase of the congressman's Del Mar house while the congressman, a member of the influential defense appropriations subcommittee, was supporting the contractor's efforts to get tens of millions of dollars in contracts from the Pentagon.
Mitchell Wade bought the San Diego Republican's house for $1,675,000 in November 2003 and put it back on the market almost immediately for roughly the same price. But the Del Mar house languished unsold and vacant for 261 days before selling for $975,000.
Meanwhile, Cunningham used the proceeds of the $1,675,000 sale to buy a $2.55 million house in Rancho Santa Fe. And Wade, who had been suffering through a flat period in winning Pentagon contracts, was on a tear – reeling in tens of millions of dollars in defense and intelligence-related contracts.
In an interview Wednesday, Cunningham conceded that the circumstances surrounding the transaction could raise "fair" questions, but he insisted that the real estate deal was legitimate and independent of his efforts to help Wade win contracts.
"My whole life I've lived aboveboard," Cunningham said. "I've never even smoked a marijuana cigarette. I don't cheat. If a contractor buys me lunch and we meet a second time, I buy the lunch. My whole life has been aboveboard and so this doesn't worry me."
Later, he added, "The last thing I would do is get involved in something that, you know, is wrong. And I feel very confident that I haven't done anything wrong."
Congressional and political watchdog organizations expressed concerns, saying the circumstances raise questions about whether the transaction might constitute an illegal campaign contribution or even an official bribe.
"This doesn't look good at all," said Larry Noble, director of the Center for Responsive Politics. "It doesn't look like something that was on the up and up."
"The potential conflicts here are enormous," added Brad White, director of investigations for Public Citizen's Congress Watch.
Wade was traveling without access to a telephone last week, according to Scotty Brumett, an official of Wade's company, MZM Inc. Brumett said Wade purchased the two-story, four-bedroom, three-and-a-half-bath residence to raise MZM's corporate profile in San Diego.
"We were looking at expanding our company presence in San Diego," Brumett said. "We looked at the property and thought it would work for us. But after we bought it, we realized that it did not meet our security or our corporate needs."
So the company placed it back on the market within one month of purchasing it, where it stayed for more than eight months, selling eventually for $700,000 less than the price Wade gave Cunningham.
"I don't know why it didn't sell," said listing agent Elizabeth Todd, a Realtor with the Willis Allen Co. in Del Mar. "I honestly don't. I mean, it's a house in Del Mar west of I-5 and it's a good-sized house. I honestly don't know why."
No Realtor was formally involved when Cunningham sold the house to Wade. But Todd had set the asking price for Cunningham at $1,675,000 and sent a table of comparable house sales to Wade justifying the price, she and Cunningham said. He didn't hire Todd as the listing agent and never paid her a fee, she added. Nor was the house ever posted in the Realtors' multiple listing service, she added.
Property records don't list Wade or MZM as the buyer of Cunningham's house. Instead, the records state that Cunningham sold the house to 1523 New Hampshire Avenue LLC. Nevada state business records show that Wade owns that company, too. It is the address of his Washington, D.C., office.
"I tried to sell my house," Cunningham explained. "And I told a bunch of other people I wanted to sell it when Mr. Wade said, 'Hey, I'll buy it.' I went through Willis and Allen. They sent him comps. And he said that's a fair price and I'll buy it. Now other than that, I don't know anything about it."
Noble and White portrayed the transaction as suspicious.
"It's not even like he sold the house to a friend who moved in," said Noble. "And MZM wasn't buying an office in San Diego. I don't know a lot of companies that increase their presence by buying a home that they don't live in.
"I mean this whole thing, frankly, raises a lot of serious questions. At the worst end of the scenarios are illegal gifts or, if this transaction was in essence a payment to Cunningham for his help in getting contracts, then you'd be talking about official bribery."
Said White: "Just the circumstances surrounding this deal raise concerns about whether it was legitimate. And it's an important question, because if it wasn't, then this transaction would be a questionable $700,000 gift from an ambitious defense contractor to a sitting member of the House defense appropriations subcommittee."
No mention of Cunningham's real estate transaction with Wade or the lawmaker's subsequent purchase of the $2.55 million house in Rancho Santa Fe appears on the annual financial disclosure form he is required to fill out each year as a member of Congress because personal residences are exempt from the forms.
Cunningham, who also sits on the House Intelligence Committee, has represented the 50th Congressional District since 1990. The district includes severalnorth county communities, such as Carlsbad, Encinitas, San Marcos, Del Mar and Escondido.
Cunningham said his home sale to Wade was totally independent of any assistance he might have given MZM in its efforts to win defense and intelligence contracts.
"I don't have anything to do with contracts," Cunningham said. "The way it works here, I support a lot of credible defense programs for either the Air Force, Navy, shipbuilding, ship repair, intel. And they say, you know, 'Duke, these are good programs. This is what we want to do.' I support those programs like I have literally thousands in San Diego."
The defense appropriations subcommittee drafts the bill that sets specific funding levels for defense programs each year. Committee staff members, acting under the supervision of the chairman and with input from members of the committee, create the initial draft of the spending bill.
With the chairman's approval, subcommittee members are able to insert targeted provisions, frequently benefiting companies, schools or other projects in their congressional districts. This process goes on largely behind closed doors, and the language of the bill rarely identifies the intended beneficiary or the subcommittee member responsible for the provision. Subcommittee members frequently win support for their pet provisions by supporting the provisions of other members.
"It's almost like a swap meet sometimes," said Eric Miller, senior defense investigator for the Project On Government Oversight.
After the draft is completed, the subcommittee, full committee and House must approve the legislation.
Asked if he had supported funding requests benefiting MZM, Cunningham said, "Oh, sure. Just like I have supported Qualcomm and everything else. Titan. SAIC. TRW."
MZM has also been a major contributor to Cunningham's political campaigns, having donated $13,000 in the 2003-04 election cycle.
Asked if he and Wade were friends, Cunningham answered, "No more than I am with (Qualcomm founder) Irwin Jacobs or (Titan Corp. founder) Gene Ray or any of the other CEOs."
Nobody would equate MZM, which is headquartered in the trendy Dupont Circle area in Washington, with San Diego-based giants Qualcomm and Titan. Nor would anyone equate Wade with Jacobs or Ray. Wade was a Pentagon program manager before launching MZM in 1993, and he struggled to get contracts as recently as three years ago.
But in 2003 and 2004, roughly around the time of the house transaction, MZM's fortunes began to soar. In fiscal year 2003, it received $41 million in defense contracts. Since then, MZM has added tens of millions of dollars in additional contracts, including a $5 million sole source contract to provide interpreters in Iraq.
In 2004, MZM had $66 million in revenues, according to Washington Technology magazine, which put the relative corporate newcomer on its 2005 list of "Top 100 Federal Prime Contractors."
MZM offers a broad range of consulting services for national security, intelligence, law enforcement and defense agencies.
Cunningham said he couldn't discuss the MZM programs he's helped advance because they are "very, very classified."
Brumett, the MZM official, refused to discuss any of MZM's contracting activities, saying, "It's government proprietary information and it's also classified."
But MZM's corporate Web site boasts that during 2004, "MZM Inc. experienced significant growth, tripling revenues since the beginning of the year and increasing staff by 285 percent. We look forward to continued growth in 2005."
Contributing to this report was CNS correspondent Jerry Kammer; special correspondents Rosemary Petersen, Kelly Bennett, Paul Nasri; and Union-Tribune researcher Cecilia Iniguez. Marcus Stern:
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